Trading Blocs and Welfare: How Trading Bloc Members Are Affected by New Entrants

June 1, 1998

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R. Scott Hacker, and Qaizar Hussain. Trading Blocs and Welfare: How Trading Bloc Members Are Affected by New Entrants, (USA: International Monetary Fund, 1998) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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.

Subject: Exports, Imports, International trade, North American Free Trade Agreement, Tariffs, Taxes, Trade agreements

Keywords: Asia and Pacific, Countries decrease, Duopoly, Duopoly model, Eastern Europe, Exports, Imports, Large country, Member-country counterpart, North America, North American Free Trade Agreement, Small-country firm, Tariffs, Trade agreements, Trading Blocs, WP

Publication Details

Pages:

25
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1998/084
Stock No:

WPIEA0841998
ISBN:

9781451850611
ISSN:

1018-5941

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