DP8161 No trade, one-way or two-way trade?
|Author(s):||Toshihiro Okubo, Pierre M Picard, Jacques-François Thisse|
|Publication Date:||December 2010|
|Keyword(s):||capital mobility, country asymmetry, trade regime|
|JEL(s):||F12, H22, H87, R12|
|Programme Areas:||International Trade and Regional Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=8161|
We study how the level of trade costs and the intensity of competition can explain the existence of two-way, one-way or no trade within the same industry. As trade costs decrease from very high to very low values, the economy moves from autarky to a regime of two-way trade, through a regime of one-way trade from the larger to the smaller country. Trade is less likely when the economy gets more competitive. Finally once capital is mobile across countries, the market delivers an outcome in which capital is too much concentrated in the large country.