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Large Countries, Small Countries, and the Enlargement of Trade Blocs

  • Alessandra Casella

Are there systematic forces such that countries of different sizes participating in a free trade bloc gain differently from the entry of new members? If economies of scale imply that firms located in large countries enjoy lower costs, then the gains from enlarging the bloc will fall disproportionately on small countries, because the entry of new members diminishes the importance of the domestic market and improves the small countries' relative competitiveness. The theoretical prediction is clear, but the empirical analysis of trade flows towards Spain and Portugal after their 1986 entry into the European Community yields mixed results. France and the U.K. appear to have lost market shares relative to the small countries in the Community, but the same is not true for Italy and, to a lesser degree, for Germany.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5365.

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Date of creation: Nov 1995
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Publication status: published as European Economic Review, vol. 40, no. 2, pp. 389-415, February 1996
Handle: RePEc:nbr:nberwo:5365
Note: ITI
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  1. Jeffrey A. Frankel & Ernesto Stein & Shang-Jin Wei, 1993. "Continental Trading Blocs: Are They Natural, or Super-Natural?," NBER Working Papers 4588, National Bureau of Economic Research, Inc.
  2. J. N. Bhagwati & R. A. Brecher, 1979. "Foreign Ownership and the Theory of Trade and Welfare," Working papers 249, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Basevi, Giorgio, 1970. "Domestic Demand and Ability to Export," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 330-37, March-Apr.
  4. Widgrén, Mika, 1994. "The Relation Between Voting Power and Policy Impact in the European Union," CEPR Discussion Papers 1033, C.E.P.R. Discussion Papers.
  5. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  6. Frankel, Jeffrey & Stein, Ernesto & Wei, Shang-jin, 1995. "Trading blocs and the Americas: The natural, the unnatural, and the super-natural," Journal of Development Economics, Elsevier, vol. 47(1), pages 61-95, June.
  7. Richard Baldwin, 1993. "A Domino Theory of Regionalism," NBER Working Papers 4465, National Bureau of Economic Research, Inc.
  8. Flam, Harry & Helpman, Elhanan, 1987. "Industrial policy under monopolistic competition," Journal of International Economics, Elsevier, vol. 22(1-2), pages 79-102, February.
  9. Widgren, Mika, 1991. "Voting Power in the EC Decision Making and the Consequencesof two Different Enlargements," Discussion Papers 377, The Research Institute of the Finnish Economy.
  10. Wellisch, Dietmar & Wildasin, David E., 1996. "Decentralized income redistribution and immigration," European Economic Review, Elsevier, vol. 40(1), pages 187-217, January.
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