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Research output: Working paper
Research output: Working paper
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TY - UNPB
T1 - It's a jungle out there: International trade when bargaining power matters
AU - Soo, Kwok Tong
PY - 2017/9
Y1 - 2017/9
N2 - 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.
AB - 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.
KW - Nash bargaining
KW - gains from trade
KW - Ricardian model
M3 - Working paper
T3 - Economics Working Papers Series
BT - It's a jungle out there: International trade when bargaining power matters
PB - Lancaster University, Department of Economics
CY - Lancaster
ER -