Economic theory suggests that a common market between two or more countries improves overall well-being, but it creates winners and losers in each country. Recent empirical findings also show that the overall impact of a common market on per capita income depends on the similarity of economic development between member countries. A common market among developed countries results in the convergence of per capita income while a common market among developing countries results in the divergence of per capita income. The difference in outcome, some economists suggest, is due to variations in comparative advantage between member states and the rest of the world. But the theory of comparative advantage does not fully explain the results of the de facto common market between Ethiopia and Eritrea (1991-1998). The empirical findings of this study demonstrate that the Ethio-Eritrea preferential trade arrangement benefited Eritrea and harmed Ethiopia. The main reason for these asymmetric consequences was acceptance by the Ethiopian government of the unfavourable terms of the preferential trade arrangement between the two countries.
"Asymmetric Benefits: The Ethio-Eritrea Common Market (1991 to 1998),"
International Journal of African Development: Vol. 4
, Article 6.
Available at: http://scholarworks.wmich.edu/ijad/vol4/iss1/6