Size Does Matter: International Trade and Population Size
22 Pages Posted: 13 Sep 2004
Date Written: July 2004
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.
Keywords: Duopoly, Free Trade, Protectionism, Population Size, Nash Equilibrium
JEL Classification: D4, F1, L1
Suggested Citation: Suggested Citation