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This paper discusses a new approach to quantify trade creation and trade diversion that relies on the structural decomposition analysis in an inter‐country input–output framework. The proposed measure captures the contribution of trade creation (diversion) between two countries to the GDP growth of the home country, partner country and third countries. For a trial calculation, the author uses the...
This study examines how the rules of origin (RoO) of a free trade agreement (FTA) affect firms' pricing strategies. The value‐added criterion (VAC) of the RoO requires firms to add more than a certain level of value within an FTA when firms use inputs originating from outside the FTA. The VAC may work as a price floor, and the resulting increases in prices can benefit all firms if it induces an offshoring...
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