Country size and the gains from trade bloc enlargement: An empirical assessment for the European community

Modern trade theory suggests that size matters in determining the allocation of the gains from enlarging a trade bloc among its members. Casella (1996), as a prominent example, postulates that small members gain relatively more. In this paper we provide a comprehensive assessment for the case of European integration, using aggregate and sectoral trade data over the period 1960-90. The Casella hypothesis of a general small country bonus is rejected; a possible interpretation is the coexistence of economic forces favoring large countries (due to group ties and advantages in absolute factor endowments), which partly offset or even dominate the small country bonus.