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Large Countries, Small Countries and the Enlargement of Trade Blocs

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  • Casella, Alessandra

Abstract

Are there systematic forces such that countries of different sizes participating in a free trade bloc gain differently from the entry of new members? If economies of scale imply that firms located in large countries enjoy lower costs, then the gains from enlarging the bloc will fall disproportionately on small countries, because the entry of new members diminishes the importance of the domestic market and improves the small countries' relative competitiveness. The theoretical prediction is clear, but the empirical analysis of trade flows towards Spain and Portugal after their 1986 entry into the European Community yields mixed results. France and the United Kingdom appear to have lost market shares relative to the small countries in the Community, but the same is not true for Italy nor, to a lesser degree, for Germany.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1320.

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Date of creation: Jan 1996
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Handle: RePEc:cpr:ceprdp:1320

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Keywords: Economic Integration; Regionalism; Trade Blocs;

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  1. Wellisch, Dietmar & Wildasin, David E., 1996. "Decentralized income redistribution and immigration," European Economic Review, Elsevier, vol. 40(1), pages 187-217, January.
  2. Basevi, Giorgio, 1970. "Domestic Demand and Ability to Export," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 330-37, March-Apr.
  3. Widgren, Mika, 1991. "Voting Power in the EC Decision Making and the Consequencesof two Different Enlargements," Discussion Papers 377, The Research Institute of the Finnish Economy.
  4. Jeffrey A. Frankel & Ernesto Stein & Shang-Jin Wei, 1993. "Continental Trading Blocs: Are They Natural, or Super-Natural?," NBER Working Papers 4588, National Bureau of Economic Research, Inc.
  5. Richard Baldwin, 1993. "A Domino Theory of Regionalism," NBER Working Papers 4465, National Bureau of Economic Research, Inc.
  6. Widgrén, Mika, 1994. "The Relation Between Voting Power and Policy Impact in the European Union," CEPR Discussion Papers 1033, C.E.P.R. Discussion Papers.
  7. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  8. Brecher, Richard A & Bhagwati, Jagdish N, 1981. "Foreign Ownership and the Theory of Trade and Welfare," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 497-511, June.
  9. Frankel, Jeffrey & Stein, Ernesto & Wei, Shang-jin, 1995. "Trading blocs and the Americas: The natural, the unnatural, and the super-natural," Journal of Development Economics, Elsevier, vol. 47(1), pages 61-95, June.
  10. Flam, Harry & Helpman, Elhanan, 1987. "Industrial policy under monopolistic competition," Journal of International Economics, Elsevier, vol. 22(1-2), pages 79-102, February.
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