DP2535 Preferential Trade Arrangements, Induced Investment, and National Income in a Heckscher-Ohlin-Ramsey Model

Author(s): Joseph Francois

Publication Date: August 2000

Keyword(s): Regionalism , Trade And Investment , Preferential Trade Arrangements , Heckscher Ohlin Ramsey Model , Trade And Growth

JEL(s): F10 , F15 , F41

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP2535.asp

We develop a Heckscher-Ohlin-Ramsey model, combining dual techniques with classic geometric techniques from trade theory. This framework is used to explore the long-run general equilibrium effects of regional integration (preferential trade agreements). Emphasis is placed on positive mechanics related to adjustment in the capital stock, long-run changes in the pattern in trade, and the implications for changes in long-run (steady-state) national income. The importance of relative country size and the dynamic implications for third countries are also addressed.