It's a jungle out there: International trade when bargaining power matters

Kwok Tong Soo ()

No 194613375, Working Papers from Lancaster University Management School, Economics Department

Abstract: Anti-globalisation protesters often claim that the gains from trade accrue primarily to large countries. This contradicts conventional trade models, which predict that small countries gain more from trade than do large countries. We first present evidence which shows that the terms of trade do indeed move in favour of countries which become larger. We then develop a model of international trade based on Ricardian comparative advantage, in which the terms of trade are derived based on the bargaining power of the two trading partners. If bargaining power depends on country size, the terms of trade will be in the larger country’s favour. However, general equilibrium adjustments mean that the larger country may not be better off under Nash bargaining than under free trade. The smaller country is unambiguously worse off compared to free trade.

Keywords: Nash bargaining; gains from trade; Ricardian model (search for similar items in EconPapers)
JEL-codes: F11 F13 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:lan:wpaper:194613375

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