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The importance of being small. Or when countries are areas and not points

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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 analyse the welfare effects of international trade between two countries that differ only in size. Our results 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 opening to trade may hurt the large country.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • THARAKAN , Joe & THISSE, Jacques-François, 2002. "The importance of being small. Or when countries are areas and not points," LIDAM Reprints CORE 1542, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:1542
    DOI: 10.1016/S0166-0462(01)00084-9
    Note: In : Regional Science and Urban Economics, 32, 381-408, 2002
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    Cited by:

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    2. Matsumura Toshihiro & Matsushima Noriaki, 2010. "When Small Firms Fight Back Against Large Firms in R&D Activities," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-42, September.
    3. Gori, Giuseppe Francesco & Lambertini, Luca, 2013. "Trade liberalisation between asymmetric countries with environmentally concerned consumers," Regional Science and Urban Economics, Elsevier, vol. 43(4), pages 549-560.
    4. Kai Andree & Mike Schwan, 2012. "Collusive Market Sharing with Spatial Competition," Economics Bulletin, AccessEcon, vol. 32(4), pages 3357-3364.
    5. Egger, Hartmut & Egger, Peter, 2010. "The trade and welfare effects of mergers in space," Regional Science and Urban Economics, Elsevier, vol. 40(4), pages 210-220, July.
    6. Inoue, Tomohiro & Kamijo, Yoshio & Tomaru, Yoshihiro, 2009. "Interregional mixed duopoly," Regional Science and Urban Economics, Elsevier, vol. 39(2), pages 233-242, March.
    7. Kevin Wiseman, 2010. "Location, Productivity, and Trade," 2010 Meeting Papers 671, Society for Economic Dynamics.
    8. Hong Feng & Jie Ma, 2018. "Location choices and third‐degree spatial price discrimination," Scottish Journal of Political Economy, Scottish Economic Society, vol. 65(2), pages 142-153, May.
    9. Tharakan, J., 2001. "Revisiting “On nations’ size and transportation costs”," LIDAM Discussion Papers CORE 2001032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    10. L. Lambertini, 2002. "the Specialization of Production and Labour Mobility Under Endogenous Differentiation," Working Papers 453, Dipartimento Scienze Economiche, Universita' di Bologna.
    11. Octave Keutiben, 2018. "Exhaustible resources flows in a spatial context," Letters in Spatial and Resource Sciences, Springer, vol. 11(1), pages 71-83, March.

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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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