The Importance of Being Small. Or When Countries are Areas and not Points

Jacques Thisse and Joe Tharakan

No 2938, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Market size and transport costs are important ingredients of international trade. We propose to look at these issues from a different perspective. Using a Hotelling duopoly model with quadratic transport costs, we analyse the welfare effects of international trade between two countries that differ only in size. Our results indicate that in most cases free trade will lead to a decrease in prices. Furthermore, the firm of the small country will benefit from market expansion. Finally, the model predicts that the small country benefits from a move towards free trade whereas the opening to trade may hurt the large country.

Keywords: International trade; Geographical nation size; Mill pricing; Spatial competition (search for similar items in EconPapers)
JEL-codes: F12 L13 (search for similar items in EconPapers)
Date: 2001-09
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Citations: View citations in EconPapers (1)

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Journal Article: The importance of being small. Or when countries are areas and not points (2002)
Working Paper: The importance of being small. Or when countries are areas and not points (2002)
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