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CEP discussion paper
Preferential Trading Arrangements and Industrial Location
Diego Puga and Anthony J. Venables
October 1995
Paper No' CEPDP0267:
Full Paper (pdf)

This paper considers the location effects of geographically discriminatory trade policy. A preferential move towards a customs union pulls industry into the integrating countries. When internal barriers fall below some critical level, input-output links between imperfectly competitive firms lead some customs union countries to gain industry at the expense of others. A hub- and-spoke arrangement favours location in the hub, with better reciprocal access induces agglomeration in the hub and may trigger disparities between the spokes.