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Journal of Economic Integration 2008 March;23(1) :57-74.
DOI: https://doi.org/10.11130/jei.2008.23.1.57
Can Growth of a Trading Partner Harm a Country?
Kwok Tong Soo 
Lancaster University
Copyright ©2008 Journal of Economic Integration
ABSTRACT

Can growth of a trading partner harm a country? This paper seeks to answer this question through the use of an eclectic trade model which is similar in flavour to Markusen (1986). This paper makes two contributions. First, it develops a simple and tractable model of international trade based on a combination of imperfect competition, comparative advantage, and identical but non-homothetic preferences in a three country framework. Second, it uses this framework to consider the possibility of losses from partner-country growth in a free-trading environment. We find that the presence of nonhomothetic preferences in particular, leads to a home bias in consumption which dampens any negative welfare effects when a country's trading partners grow.

JEL classification: F12, F14

Keywords: International trade | Three countries | Non-homothetic preferences
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