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The importance of being small : size effects in international trade

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  • THARAKAN, Joe
  • THISSE, Jacques-François

Abstract

Market size and transport costs are important ingredients of international trade. We propose to look at these issues from a different perspective. Using a Hotelling duopoly model with quadratic transport costs, we analyze the welfare effects of international trade between two countries which differonly in size. Ourr esults indicate that in most cases free trade will lead to a decrease in prices. Furthermore, the firm of the small country will benefit from market expansion. Finally, the model predicts that the small country benefits from a move towards free trade whereas the large country may be hurt by the opening totrade.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2000001.

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Date of creation: 01 Jan 2000
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Handle: RePEc:cor:louvco:2000001

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Related research

Keywords: international trade; nation size; mill pricing; spatial competition.;

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  1. Alberto Alesina & Enrico Spolaore, 1995. "On the Number and Size of Nations," NBER Working Papers 5050, National Bureau of Economic Research, Inc.
  2. Fujita, M. & Thisse, J.-F., . "Economics of agglomeration," CORE Discussion Papers RP -1250, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "On Hotelling's "Stability in competition"," CORE Discussion Papers RP -385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Ohsawa, Yoshiaki, 1999. "Cross-border shopping and commodity tax competition among governments," Regional Science and Urban Economics, Elsevier, vol. 29(1), pages 33-51, January.
  5. Shachmurove, Yochanan & Spiegel, Uriel, 1995. "On Nations' Size and Transportation Costs," Review of International Economics, Wiley Blackwell, vol. 3(2), pages 235-43, June.
  6. Economides, Nicholas, 1984. "The principle of minimum differentiation revisited," European Economic Review, Elsevier, vol. 24(3), pages 345-368, April.
  7. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
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