Efficiency Gaps, Love of Variety and International Trade
AbstractWe develop a general equilibrium monopolistic competition model of trade with technical heterogeneity among firms and countries. With free entry, technical asymmetries between firms result in the endogenous determination of the equilibrium average efficiency of the industry. We show that trade reduces (increases) the minimum efficiency required to survive in the more (less) efficient country. This has important welfare implications: (1) Contrary to the constant elasticity of substitution homogeneous-firms model, trade affects welfare even when there is no love of variety. (2) There are circumstances in which trade liberalization leads to a loss of consumer welfare. Copyright 2001 by The London School of Economics and Political Science
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Bibliographic InfoArticle provided by London School of Economics and Political Science in its journal Economica.
Volume (Year): 68 (2001)
Issue (Month): 269 (February)
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Other versions of this item:
- Catia Montagna, 1998. "Efficiency Gaps, Love of Variety and International Trade," Dundee Discussion Papers in Economics 090, Economic Studies, University of Dundee.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David Dollar & Edward N. Wolff, 1993. "Competitiveness, Convergence, and International Specialization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262041359, December.
- Mueller,Dennis C., 1986.
"Profits in the Long Run,"
Cambridge University Press, number 9780521306935, April.
- Romer, Paul, 1994.
"New goods, old theory, and the welfare costs of trade restrictions,"
Journal of Development Economics,
Elsevier, vol. 43(1), pages 5-38, February.
- Paul M. Romer, 1993. "New Goods, Old Theory, and the Welfare Costs of Trade Restrictions," NBER Working Papers 4452, National Bureau of Economic Research, Inc.
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