Chapter 22 Free Trade between Large and Small: What's in it for the Large Country? What's in it for the Small?

Abstract

This chapter provides a formal analysis of the economic welfare effects for large and small partners to free trade agreements. Michaely (1998) has demonstrated that large country welfare is U-shaped in the small country's size. I derive the welfare for the large country for all possible small country sizes, and show that the maximum possible loss for the large country is twice its tariff revenue. I identify the data necessary to estimate the welfare effects and consider how initial trade volumes, tariffs, and international price differences affect the large country's welfare.

Citation

Kowalczyk, C. (2008), "Chapter 22 Free Trade between Large and Small: What's in it for the Large Country? What's in it for the Small?", Marjit, S. and Yu, E.S.H. (Ed.) Contemporary and Emerging Issues in Trade Theory and Policy (Frontiers of Economics and Globalization, Vol. 4), Emerald Group Publishing Limited, Leeds, pp. 417-427. https://doi.org/10.1016/S1574-8715(08)04022-0