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On zero and asymmetric trade flows

Listed author(s):
  • Toshihiro Okubo


    (Kobe University)

  • Pierre M. Picard

    (CREA, University of Luxembourg)

  • Jacques-François Thisse


    (CREA, University of Luxembourg; Université Catholique de Louvain; CEPR)

In this paper we study how the trade costs and the intensity of competition can explain the existence of bilateral trade, unilateral trade and no trade within an industry. We show as trade costs decrease from very high to very low values, the global economy moves from autarky to a regime of bilateral trade, through a regime of unilateral trade from the larger to the smaller country. Bilateral or unilateral trade is less likely when the global economy gets more competitive. Finally, the market delivers an outcome in which capital is too much concentrated in the larger country.

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Paper provided by Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 10-08.

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Date of creation: 2010
Handle: RePEc:luc:wpaper:10-08
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