Size Does Matter: International Trade and Population Size

Yochanan Shachmurove () and Uriel Spiegel ()
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Uriel Spiegel: Department of Economics, Bar Ilan University

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: Classical theory of international trade has long advocated trade liberalization and open borders. However, this process is not necessarily beneficial to all countries involved. This paper focuses on two modeled economies that initially share the same technology and per-capita income, but differ in population size. With trade, the profit of the large duopolist is reduced to the benefit of the duopoly in the smaller country, as the large country is no longer able to benefit from its larger population. This may explain why one country would want to open trade with high barriers while another country would prefer low barriers.

Keywords: Duopoly; Free Trade; Protectionism; Population Size; Nash Equilibrium (search for similar items in EconPapers)
JEL-codes: D4 F1 L1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-afr
Date: 2004-07-04
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Persistent link: http://EconPapers.repec.org/RePEc:pen:papers:04-035

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