Preferential trading areas: investment and welfare effects when countries differ in their size

Yogesh Uppal ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the investment and welfare effects of a preferential trading area (PTA) on member and non-member countries when countries differ in their relative size. I numerically solve a three-country and two-good model to characterize equilibria pertaining to investment diverting and creating effects of a preferential trade area. I conclude that welfare benefits of a preferential trade area are non-negative for the member countries, and could go either way for the non-member countries depending on their relative size. There exist equilibria which, given the parameter values and the relative size, result in welfare improvement in non-member countries.

Keywords: Preferential Trade Areas; Investment effects; Size of a country (search for similar items in EconPapers)
JEL-codes: F12 F15 F23 (search for similar items in EconPapers)
Date: 2008-06-30
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:15193

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