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On the possibility of a perverse effect of intra-industry trade



    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE) and Universitat Pompeu Fabra, Barcelona)


One of the most usual claims in the debate on economic Integration is that trade liberalization and a fortiori free trade agreements are at the greater advantage of consumers of all countries. In this paper we show that this statement should be temperated if the countries differ considerably with respect to per capita income. If this is the case it can happen that only the consumers of the richest countries gain from the creation of a common market; while, in the poorest countries, the firms gain but the consumers are worse off. The analysis confirms some worries about the short run effects and the distributive problems induced by the economic integration of heterogeneous areas.

Suggested Citation

  • Tito CORDELLA, 1996. "On the possibility of a perverse effect of intra-industry trade," Discussion Papers (REL - Recherches Economiques de Louvain) 1996021, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  • Handle: RePEc:ctl:louvre:1996021

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    References listed on IDEAS

    1. N. Gregory Mankiw, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 100(2), pages 529-538.
    2. George A. Akerlof & Janet L. Yellen, 1985. "A Near-Rational Model of the Business Cycle, with Wage and Price Inertia," The Quarterly Journal of Economics, Oxford University Press, vol. 100(Supplemen), pages 823-838.
    3. Dreze, Jacques & Bean, Charles R, 1990. " European Unemployment: Lessons from a Multicountry Econometric Study," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(2), pages 135-165.
    4. Sneessens, Henri R & Dreze, Jacques H, 1986. "A Discussion of Belgian Unemployment, Combining Traditional Concepts and Disequilibrium Econometrics," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages 89-119, Supplemen.
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    6. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    7. repec:adr:anecst:y:1987:i:5 is not listed on IDEAS
    8. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-666, September.
    9. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-224, January.
    10. Sneessens, Henri R., 1987. "Investment and the inflation-unemployment tradeoff in a macroeconomic rationing model with monopolistic competition," European Economic Review, Elsevier, vol. 31(3), pages 781-808, April.
    11. Edmond Malinvaud, 1987. "Capital productif, incertitudes et profitabilité," Annals of Economics and Statistics, GENES, issue 5, pages 1-36.
    12. repec:adr:anecst:y:1987:i:5:p:01 is not listed on IDEAS
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    Cited by:

    1. Tharakan, Joe & Thisse, Jacques-Francois, 2002. "The importance of being small. Or when countries are areas and not points," Regional Science and Urban Economics, Elsevier, vol. 32(3), pages 381-408, May.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation


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