On The Advantages of Piecemeal Integration
For the study of economic integration, it is costumary to use a three countryworld, where two of the countries may introduce forms of closer economic cooperation. In the present model, we follow this tradition but put special emphasis on the role of credit and entrepreneurship. Our model is of the standard neoclassical type, with the addition that production takes time and is subject to uncertainty. Also, firms must use the financial system in order to buy inputs; the cost of credit may differ among countries and industries, reflecting their basic patterns of uncertainty. Following the Newbery-Stiglitz approach, we show that in such model we may exhibit cases of Pareto inferior trade and, in particular, Pareto inferior economic integration. More specifically, we show that integrating countries of very different economic size may give rise to adverse effects on welfare, whereas integration of countries with a more similar economic structure and size tends to have beneficial effects for the parties.
|Date of creation:||01 Feb 2005|
|Date of revision:|
|Contact details of provider:|| Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark|
Phone: 38 15 25 75
Fax: 38 15 34 99
Web page: http://www.cbs.dk/departments/econ/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hamid Beladi & Nancy H. Chau, 2000. "Endogenous factor market distortion, risk aversion, and international trade under input uncertainty," Canadian Journal of Economics, Canadian Economics Association, vol. 33(2), pages 523-539, May.
- Helpman, Elhanan & Razin, Assaf, 1978. "A theory of international trade under uncertainty," MPRA Paper 22112, University Library of Munich, Germany.
- Gale, D. & Mas-Colell, A., 1975. "An equilibrium existence theorem for a general model without ordered preferences," Journal of Mathematical Economics, Elsevier, vol. 2(1), pages 9-15, March.
- Hoff, Karla, 1994. "A reexamination of the neoclassical trade model under uncertainty," Journal of International Economics, Elsevier, vol. 36(1-2), pages 1-27, February.
- David M. G. Newbery & Joseph E. Stiglitz, 1984. "Pareto Inferior Trade," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 1-12.
When requesting a correction, please mention this item's handle: RePEc:hhs:cbsnow:2005_004. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lars Nondal)
If references are entirely missing, you can add them using this form.