Trading Blocs and Welfare: How Trading Bloc Members Are Affected by New Entrants
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Summary:
This paper uses the three-country duopoly model to examine the effects of lowered trade barriers when a new entrant joins a trading bloc. There are two firms—a small-country firm and a large-country firm within the bloc—and three markets—two within and one (new entrant’s) outside the bloc. The analysis generally shows greater gains for the small-country than for the large-country firm. The small-country firm will export more to the external country than the large-country firm. But if tariffs decline, the export share of the large-country firm will increase relative to the small-country firm’s, though profits will improve more for the latter.
Series:
Working Paper No. 1998/084
Subject:
Exports Imports International trade North American Free Trade Agreement Tariffs Taxes Trade agreements
English
Publication Date:
June 1, 1998
ISBN/ISSN:
9781451850611/1018-5941
Stock No:
WPIEA0841998
Pages:
25
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