Enlargement of the European Union: A movement towards the optimal trade bloc size?

Abstract

This paper analyses how the enlargement of a trade bloc will affect national welfare. We establish a partial equilibrium model of a trade bloc either operating as a monopoly with a competitive fringe or facing a duopolistic game in production taxes/subsidies. Given this framework, we demonstrate how member countries’ welfare effects depend on their trade flow and the market power of the trade bloc. A numerical estimation of the effects of EU enlargement on the major grain crop markets suggests that welfare effects are negligible. Economic reasons are therefore unlikely to be a motivating force for further enlargement.trade bloc, trade liberalisation, game theory, European Union, International Relations/Trade, D42, F11, Q17, Q18,