Trade diversion is reversed in the long run

Takumi Naito

Review of Economic Dynamics, 2021, vol. 39, 202-219

Abstract: We explore the role of economic growth as a cause of reverse trade diversion in an asymmetric three-country Melitz model. A regional trade agreement between countries 1 and 2 decreases country 3's growth rate and the revenue shares of varieties country 3 exports to countries 1 and 2 in the short run, but increases them in the long run, compared with the old balanced growth path. This is because faster short-run growth in countries 1 and 2 than country 3 starts to increase the members' market entry costs more than the nonmember, thereby making the latter relatively more competitive. (Copyright: Elsevier)

Keywords: Reverse trade diversion; Melitz model; Regional trade agreement; Endogenous growth; Transitional dynamics (search for similar items in EconPapers)
JEL-codes: F13 F15 F43 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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DOI: 10.1016/j.red.2020.07.002

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