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| Author: | McLaren, J. |
| Title: | Size, sunk costs, and judge Bowker's objection to free trade |
| Journal: | American Economic Review
1997 : JUN, VOL. 87:3, p. 400-420 |
| Index terms: | FREE TRADE COSTS COUNTRY COMPARISONS INVESTMENTS |
| Language: | eng |
| Abstract: | In trade liberalisation between a large and a small country, if production requires irreversible investments, anticipated negotiations can make the small country strictly worse off than a fully anticipated trade war, because investors are anticipating free trade, and will thus invest in the export sector, making the small country dependent on trade with the large one and ruining its bargaining power. The effect is dominated by conventional effects, so that anticipated bargaining benefits the small country on balance, if there is a sufficient substitutability between goods, and dissimilarity between economies. |
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