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

R. Hacker and Qaizar Hussain

No 1998/084, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; Trading Blocs; Duopoly; Tariffs; small-country firm; duopoly model; countries decrease; large country; member-country counterpart; Trade agreements; Exports; Imports; North American Free Trade Agreement; Eastern Europe; North America; Asia and Pacific (search for similar items in EconPapers)
Pages: 25
Date: 1998-06-01
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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1998/084

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