Citation

Discussion Paper Details

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Title: The Importance of Being Small. Or When Countries are Areas and not Points

Author(s): Joe Tharakan and Jacques-François Thisse

Publication Date: September 2001

Keyword(s): geographical nation size, international Trade, mill pricing and spatial competition

Programme Area(s): Industrial Organization and International Trade and Regional Economics

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 analyse the welfare effects of international trade between two countries that differ only in size. Our results 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 opening to trade may hurt the large country.

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Bibliographic Reference

Tharakan, J and Thisse, J. 2001. 'The Importance of Being Small. Or When Countries are Areas and not Points'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2938