Trading Blocs and Welfare: How Trading Bloc Members Are Affected by New Entrants
June 1, 1998
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Summary
This paper uses the three-country duopoly model to examine the effects of lowered trade barriers when a new entrant joins a trading bloc. There are two firms—a small-country firm and a large-country firm within the bloc—and three markets—two within and one (new entrant’s) outside the bloc. The analysis generally shows greater gains for the small-country than for the large-country firm. The small-country firm will export more to the external country than the large-country firm. But if tariffs decline, the export share of the large-country firm will increase relative to the small-country firm’s, though profits will improve more for the latter.
Subject: Exports, Imports, International trade, North American Free Trade Agreement, Tariffs, Taxes, Trade agreements
Keywords: Asia and Pacific, countries decrease, Duopoly, duopoly model, Eastern Europe, Exports, Imports, large country, member-country counterpart, North America, North American Free Trade Agreement, small-country firm, Tariffs, Trade agreements, Trading Blocs, WP
Pages:
25
Volume:
1998
DOI:
Issue:
084
Series:
Working Paper No. 1998/084
Stock No:
WPIEA0841998
ISBN:
9781451850611
ISSN:
1018-5941
