The author wishes to thank an anonymous referee, Monika Schnitzer, Jürgen Eichberger, Klaus Schmidt, Hans-Bernd Schäfer, Eberhard Feess, and colleagues and seminar participants in Hamburg, Heidelberg, Munich, Copenhagen, and Toulouse for their valuable comments.
Parallel Trade and its Ambiguous Effects on Global Welfare
Article first published online: 16 JAN 2012
© 2012 Blackwell Publishing Ltd
Review of International Economics
Volume 20, Issue 1, pages 177–185, February 2012
How to Cite
Mueller-Langer, F. (2012), Parallel Trade and its Ambiguous Effects on Global Welfare. Review of International Economics, 20: 177–185. doi: 10.1111/j.1467-9396.2011.01016.x
- Issue published online: 16 JAN 2012
- Article first published online: 16 JAN 2012
The regulation of parallel trade is a fiercely debated issue in the global trading system. This paper investigates the welfare effects of parallel trade freedom for different levels of trade costs and market size. It is found that parallel trade freedom has a positive effect on global welfare if countries are sufficiently heterogeneous in terms of market size and trade costs are sufficiently low. Contrary to intuition, this result even holds in a situation where parallel trade freedom implies the closure of the smaller market. If, however, countries are virtually homogenous in terms of market size, parallel trade freedom may be detrimental to global welfare for specific levels of trade costs.