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
F12; H22; H87; R12
Research Institute for Economics and Business Administration
Rokkodai-cho, Nada-ku, Kobe
Pierre M. PICARD
CREA, University of Luxembourg (Luxembourg) and CORE, Université catholique de Louvain (Belgium)
CORE, Université catholique de Louvain (Belgium), Université du Luxembourg, CEPR, and RIEB, Kobe University