No trade, one-way or two-way trade?


We study how the level of trade costs and the intensity of competition can explain the existence of two-way, one-way or no trade within the same industry. As trade costs decrease from very high to very low values, the economy moves from autarky to a regime of two-way trade, through a regime of one-way trade from the larger to the smaller country. Trade is less likely when the economy gets more competitive. Finally once capital is mobile across countries, the market delivers an outcome in which capital is too much concentrated in the large country.


trade regime; country asymmetry; capital mobility

JEL Classification

F12; H22; H87; R12


Toshihiro OKUBO
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059

Pierre M. PICARD
CREA, University of Luxembourg (Luxembourg) and CORE, Université catholique de Louvain (Belgium)

Jacques-François THISSE
CORE, Université catholique de Louvain (Belgium), Université du Luxembourg, CEPR, and RIEB, Kobe University