Size Does Matter: International Trade and Population Size
AbstractClassical theory of international trade has long advocated trade liberalization and open borders. However, this process is not necessarily beneficial to all countries involved. This paper focuses on two modeled economies that initially share the same technology and per-capita income, but differ in population size. With trade, the profit of the large duopolist is reduced to the benefit of the duopoly in the smaller country, as the large country is no longer able to benefit from its larger population. This may explain why one country would want to open trade with high barriers while another country would prefer low barriers.
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Bibliographic InfoPaper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 04-035.
Length: 22 pages
Date of creation: 04 Jul 2004
Date of revision:
Duopoly; Free Trade; Protectionism; Population Size; Nash Equilibrium;
Find related papers by JEL classification:
- D4 - Microeconomics - - Market Structure and Pricing
- F1 - International Economics - - Trade
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
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