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Economic integration: national firms

Economic integration: national firms. Primary aim : The design of Regional Integration Agreements (RIAs) in case of National Firms and monopolistic competition How does trade liberalization (RIAs such as the EU) affect employment, income and self-sufficiency in a peripheral country?

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Economic integration: national firms

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  1. Economic integration: national firms Primary aim: The design of Regional Integration Agreements (RIAs) in case of National Firms and monopolistic competition How does trade liberalization (RIAs such as the EU) affect employment, income and self-sufficiency in a peripheral country? Trade liberalization is considered as a reduction in transportation costs (different trade barriers)

  2. One central and one peripheral region • The message : • A moderate reduction of trade barriers (negative effect on the peripheral country) • Complete elimination of trade barriers (positive effect on the peripheral country)

  3. Hypothetical effects of lowering trade barriers

  4. Model: Two sectors (one perfectly and one imperfectly competitive) and two regions (i and j) Inter- and intra-regionaltrade in imperfectlycompetitivesector (manufacturing) X(ij) i X(jj) j X(ii) X(ji)

  5. Model: Pij = a – 1/sj {(1 +θ )Xij/2 + θ[(ni – 1)Xij + nj Xjj ]} Pii = b– 1/si {(1 +θ )Xii/2 + θ[(ni – 1)Xii + nj Xji ]} Πi = (Pii – ci)Xii + (Pij – ci - t)Xij – fi

  6. Overview of the simulations • Wages equal and fixed in both countries: fixed AVC • Short run The number of firms fixed in the countries • Long run The number of firms varies in the countries • Upward sloping supply curve for labour: variable AVC

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