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Does Preferential Trade Benefit Poor Countries? A General Equilibrium Assessment with Nonhomothetic Preferences
Author(s) -
Stibora Joachim,
de Vaal Albert
Publication year - 2015
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12170
Subject(s) - economics , welfare , international economics , comparative advantage , distribution (mathematics) , developing country , international trade , gains from trade , trade barrier , economic growth , market economy , mathematical analysis , mathematics
Abstract We develop a Ricardian model of trade with nonhomothetic preferences to analyze preferential trade agreements ( PTAs ) among countries of different stages of economic development. The richer a country is, the more likely will PTAs improve its terms of trade, also when it is a non‐member. Rich non‐member countries are also less likely to incur welfare losses from PTAs . PTA membership only guarantees welfare gains for countries that are too poor to import the goods rich countries produce. For all other countries, the welfare effects of joining PTAs depend on the world income distribution and on the strength of comparative advantages.