Abstract
AbstractThe paper explores the effects of economic integration on trade, wages, and welfare when market sizes differ. A duopoly model with two‐way intraindustry trade in similar products and with unionized labor markets is employed. It is confirmed that, for a wide range of different relative market sizes, integration leads to higher wages, employment, and welfare. However, where market sizes differ widely, the reduction of trade barriers leads to a reduction of wages, employment, and—in some circumstances—welfare in the country with the large market.
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