GEP Research Paper 00/15
Does Trade Liberalisation Damage Firms in Large Countries? Cost and Size Asymmetries in Intra-Industry Trade
Robert Hine, José Torres and Peter Wright
Abstract
This paper studies the effect of trade liberalisation in oligopolistic markets when there are asymmetries across countries. We consider two types of asymmetry: costs of production and market size. We show that trade liberalisation in oligopolistic markets always increases the social welfare of small countries but may reduce the social welfare of larger countries even when their rivals are high-cost. This is contrary to the traditional view that trade barriers protect small inefficient producers, and that special measures in favour of peripheral economies may be needed when trade is liberalised.
Issued in September 2000.
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