Small states, micro states, and their international negotiation and migration

Abstract

Due to low bargaining power and scarce resources, small developing states face severe disadvantages in international negotiations and may benefit from bloc formation and intra-bloc migration. Policies are examined in a model where a bloc's size and welfare impact are determined by international and regional negotiation costs, bargaining power, accession rule, and intra-bloc migration. The main findings are: (i) bloc formation likelihood, size, and benefit increase with international negotiation costs; (ii) intra-bloc migration acts as a public good, raising regional benefits; (iii) bloc size is optimal in the presence of accession fees; (iv) intra-bloc migration and North- South trade are complements under negotiations for increased market access. Thus, even if trading identical goods, small neighboring states should consider forming an international negotiating bloc and supporting intra-bloc migration. © 2014-Center for Economic Integration, Sejong Institution, Sejong University, All Rights Reserved.