Trading Blocs and Welfare

Download or read book Trading Blocs and Welfare written by Mr.Qaizar Hussain and published by International Monetary Fund. This book was released on 1998-06-01 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.