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On the possibility of a perverse effect of intra-industry trade

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  • Tito CORDELLA

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE) and Universitat Pompeu Fabra, Barcelona)

Abstract

One of the most usual claims in the debate on economic Integration is that trade liberalization and a fortiori free trade agreements are at the greater advantage of consumers of all countries. In this paper we show that this statement should be temperated if the countries differ considerably with respect to per capita income. If this is the case it can happen that only the consumers of the richest countries gain from the creation of a common market; while, in the poorest countries, the firms gain but the consumers are worse off. The analysis confirms some worries about the short run effects and the distributive problems induced by the economic integration of heterogeneous areas.

Suggested Citation

  • Tito CORDELLA, 1996. "On the possibility of a perverse effect of intra-industry trade," Discussion Papers (REL - Recherches Economiques de Louvain) 1996021, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvre:1996021
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    File URL: http://www.jstor.org/stable/40724118
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    Cited by:

    1. Tharakan, Joe & Thisse, Jacques-Francois, 2002. "The importance of being small. Or when countries are areas and not points," Regional Science and Urban Economics, Elsevier, vol. 32(3), pages 381-408, May.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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