Country asymmetry, trade agreements, and transfers
Jean-Marc Kilolo ()
Economics and Politics, 2021, vol. 33, issue 1, 37-51
Using a standard 2 × 2 trade agreement model, I show that the welfare effects of a free trade agreement (FTA) depend on the asymmetry on supply and demand functions. When countries are sufficiently asymmetric with respect to the size or the demand functions, the small country tends to be better off, while the large country is worse off. Thus, the small country must compensate the large country for the FTA to be incentive‐compatible. However, in the presence of sufficient asymmetry in the supply functions, the small country is worse off, while the bigger is better off. In this case, the transfer must flow from the large to the small country. This last finding helps explain why some FTAs between rich and poor countries provide for adjustment transfers to the latter.
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bla:ecopol:v:33:y:2021:i:1:p:37-51
Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0954-1985
Access Statistics for this article
Economics and Politics is currently edited by Peter Rosendorff
More articles in Economics and Politics from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().