Size Does Matter: International Trade and Population Size
The City College of The City University of New York - Department of Economics; The University of Pennsylvania - Department of Economics
Bar Ilan University - Department of Economics
PIER Working Paper No. 04-035
Classical theory of international trade has long advocated trade liberalization and open borders. However, this process is not necessarily beneficial to all countries involved. This paper focuses on two modeled economies that initially share the same technology and per-capita income, but differ in population size. With trade, the profit of the large duopolist is reduced to the benefit of the duopoly in the smaller country, as the large country is no longer able to benefit from its larger population. This may explain why one country would want to open trade with high barriers while another country would prefer low barriers.
Number of Pages in PDF File: 22
Keywords: Duopoly, Free Trade, Protectionism, Population Size, Nash Equilibrium
JEL Classification: D4, F1, L1working papers series
Date posted: September 13, 2004
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