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Trade liberalization by less developed countries with a large market size: meager welfare gains?

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  • Adolfo Cristobal Campoamor

    (Universidad Loyola Andalucia)

Abstract

In this paper we present a one-sector Dixit-Stiglitz-Krugman model of North-South trade, in order to evaluate the welfare and convergence implications of a gradual, bilateral trade liberalization. Using the same formal setting that generated the “new trade theory†wave, we show that a poorer and technologically disadvantaged South may diverge in welfare terms with the North, provided that its population and market size were large enough. Both regional blocks are shown to benefit from freer trade in absolute terms.

Suggested Citation

  • Adolfo Cristobal Campoamor, 2019. "Trade liberalization by less developed countries with a large market size: meager welfare gains?," Economics Bulletin, AccessEcon, vol. 39(2), pages 1309-1317.
    • Handle: RePEc:ebl:ecbull:eb-19-00065
    as

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    References listed on IDEAS

    as
    1. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    2. Behrens, Kristian & Gaigne, Carl & Ottaviano, Gianmarco I.P. & Thisse, Jacques-Francois, 2007. "Countries, regions and trade: On the welfare impacts of economic integration," European Economic Review, Elsevier, vol. 51(5), pages 1277-1301, July.
    3. Satya P. Das, 2005. "Gradual globalization and inequality between and within countries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(3), pages 852-869, August.
    4. Gabriel Felbermayr & Benjamin Jung & Gabriel J. Felbermayr, 2015. "Market Size and TFP in New New Trade Theory," CESifo Working Paper Series 5583, CESifo.
    5. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    6. Charlot, Sylvie & Gaigne, Carl & Robert-Nicoud, Frederic & Thisse, Jacques-Francois, 2006. "Agglomeration and welfare: The core-periphery model in the light of Bentham, Kaldor, and Rawls," Journal of Public Economics, Elsevier, vol. 90(1-2), pages 325-347, January.
    7. Jung, Benjamin & Felbermayr, Gabriel, 2015. "Market Size Effects in New New Trade Theory," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113038, Verein für Socialpolitik / German Economic Association.
    8. Satya Das, 2005. "Gradual globalization and inequality between and within countries," Canadian Journal of Economics, Canadian Economics Association, vol. 38(3), pages 852-869, August.
    9. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
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    Keywords

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    JEL classification:

    • F1 - International Economics - - Trade
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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