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Size Does Matter: International Trade and Population Size

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  • Yochanan Shachmurove

    ()
    (The City College of The City University of New York and the University of Pennsylvania)

  • Uriel Spiegel

    ()
    (Department of Economics, Bar Ilan University)

Abstract

Classical 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 Info

Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 04-035.

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Length: 22 pages
Date of creation: 04 Jul 2004
Date of revision:
Handle: RePEc:pen:papers:04-035

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Keywords: Duopoly; Free Trade; Protectionism; Population Size; Nash Equilibrium;

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  1. Paul Krugman, 1986. "Industrial Organization and International Trade," NBER Working Papers 1957, National Bureau of Economic Research, Inc.
  2. Batra, Ravi, 1992. "The Fallacy of Free Trade," Review of International Economics, Wiley Blackwell, vol. 1(1), pages 19-31, November.
  3. Krugman, Paul & Elizondo, Raul Livas, 1996. "Trade policy and the Third World metropolis," Journal of Development Economics, Elsevier, vol. 49(1), pages 137-150, April.
  4. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455 Elsevier.
  5. Kanbur, Ravi & Keen, Michael, 1993. "Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size," American Economic Review, American Economic Association, vol. 83(4), pages 877-92, September.
  6. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  7. Shachmurove, Yochanan & Spiegel, Uriel, 1995. "On Nations' Size and Transportation Costs," Review of International Economics, Wiley Blackwell, vol. 3(2), pages 235-43, June.
  8. Krugman, Paul R, 1987. "Is Free Trade Passe?," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 131-44, Fall.
  9. Collie, David R, 1997. "Bilateralism Is Good: Trade Blocs and Strategic Export Subsidies," Oxford Economic Papers, Oxford University Press, vol. 49(4), pages 504-20, October.
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