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The importance of being small : size effects in international trade

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  • THARAKAN, Joe
  • THISSE, Jacques-François

Abstract

Market size and transport costs are important ingredients of international trade. We propose to look at these issues from a different perspective. Using a Hotelling duopoly model with quadratic transport costs, we analyze the welfare effects of international trade between two countries which differonly in size. Ourr esults indicate that in most cases free trade will lead to a decrease in prices. Furthermore, the firm of the small country will benefit from market expansion. Finally, the model predicts that the small country benefits from a move towards free trade whereas the large country may be hurt by the opening totrade.

Suggested Citation

  • THARAKAN, Joe & THISSE, Jacques-François, 2000. "The importance of being small : size effects in international trade," LIDAM Discussion Papers CORE 2000001, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2000001
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    References listed on IDEAS

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    More about this item

    Keywords

    international trade; nation size; mill pricing; spatial competition.;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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