Income Effects and Trade Agreements

David DeRemer

No 1616, CERS-IE WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies

Abstract: This paper considers trade agreements in a sufficiently general framework to encompass both imperfectly competitive market structures and income effects in government objectives. We show that governments choose globally efficient policies if they act as if they do not value the impact of their policies on their terms of trade. The results confirm that additional international externalities that arise in imperfectly competitive settings are the result of government failure to equate markups between sectors with domestic policies, not demand-side factors.

Keywords: trade agreements; income effects; non-homothetic preferences (search for similar items in EconPapers)
JEL-codes: F12 F13 F15 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2016-07
New Economics Papers: this item is included in nep-int
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