Does Preferential Trade Benefit Poor Countries? A General Equilibrium Assessment with Nonhomothetic Preferences |
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| Authors: | Joachim Stibora Albert de Vaal |
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| Institution: | 1. Faculty of Social Sciences, School of Economics, Kingston University, UK;2. Nijmegen School of Management, Institute of Management Research, Radboud University Nijmegen, The NetherlandsThe authors would like to thank Willy Spanjers, Peter Skott and two anonymous referees for their useful comments and suggestions. They also would like to thank participants of seminars and workshops at Hebrew University in Jerusalem, Kansas University in Lawrence, Kansas, Vienna University, Kingston University, and Radboud University for suggestions. Finally, they thank Marcia Schafgans for her perceptive comments and moral support. The authors are responsible for all remaining errors. |
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| 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. |
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