TY - JOUR
T1 - Trade diversion is reversed in the long run
AU - Naito, Takumi
N1 - Funding Information:
I am grateful to the co-ordinating editor Vincenzo Quadrini, an anonymous referee, and conference and seminar participants at Workshop on International Trade and Investment, Hitotsubashi University, and Kobe University for their helpful comments and suggestions. I also appreciate JSPS (#16K03671) for financial support. All remaining errors are mine.
Funding Information:
I am grateful to the co-ordinating editor Vincenzo Quadrini, an anonymous referee, and conference and seminar participants at Workshop on International Trade and Investment, Hitotsubashi University, and Kobe University for their helpful comments and suggestions. I also appreciate JSPS (# 16K03671 ) for financial support. All remaining errors are mine.
Publisher Copyright:
© 2020 The Author(s)
PY - 2021/1
Y1 - 2021/1
N2 - 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.
AB - 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.
KW - Endogenous growth
KW - Melitz model
KW - Regional trade agreement
KW - Reverse trade diversion
KW - Transitional dynamics
UR - http://www.scopus.com/inward/record.url?scp=85088787319&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85088787319&partnerID=8YFLogxK
U2 - 10.1016/j.red.2020.07.002
DO - 10.1016/j.red.2020.07.002
M3 - Article
AN - SCOPUS:85088787319
SN - 1094-2025
VL - 39
SP - 202
EP - 219
JO - Review of Economic Dynamics
JF - Review of Economic Dynamics
ER -
