Trading Blocs and Welfare
Author | : Mr.Qaizar Hussain |
Publisher | : International Monetary Fund |
Total Pages | : 26 |
Release | : 1998-06-01 |
ISBN-10 | : 9781451850611 |
ISBN-13 | : 1451850611 |
Rating | : 4/5 (11 Downloads) |
Book excerpt: This paper uses the three-country duopoly model to examine the effects of lowered trade barriers when a new entrant joins a trading bloc. There are two firms—a small-country firm and a large-country firm within the bloc—and three markets—two within and one (new entrant’s) outside the bloc. The analysis generally shows greater gains for the small-country than for the large-country firm. The small-country firm will export more to the external country than the large-country firm. But if tariffs decline, the export share of the large-country firm will increase relative to the small-country firm’s, though profits will improve more for the latter.