Small Economies Gain Bargaining Power in Global Trade
The article explores how small open economies (SOEs) interact with other countries when there are numerous trading partners and high trade costs. They consider various economic models to find the limits and behavior of these SOEs. The research shows that as the number or size of trading partners and trade costs increase, SOEs still engage in trade with foreign countries which leads to specific domestic spending patterns. The research suggests that foreign countries could be numerous SOEs or one or more large countries with high domestic spending. One practical application highlighted is the development of a formula for determining the best tariff rate for an SOE based on the impact on domestic wages.