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International trade, migration and investment with horizontal product differentiation and free entry and exit of firms

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  • Hernan Vallejo

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Abstract

This paper builds a circular road model of the world with horizontal product differentiation and free entry and exit of firms, to show that freer international trade increases welfare -with ideal variety preferences- through the exploitation of economies of scale and better allocative efficiency, that all participating countries gain from trade, and that smaller countries have more to win from free trade than larger countries. Political resistance to trade liberalization, international migration and foreign direct investment are also analyzed with the model. Finally, the model provides a microfoundation for the use of demand curves with constant and negative slopes.

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Bibliographic Info

Article provided by UNIVERSIDAD DEL ROSARIO in its journal REVISTA DE ECONOMÍA DEL ROSARIO.

Volume (Year): (2006)
Issue (Month): ()
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Handle: RePEc:col:000151:004252

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Keywords: monopolistic competition; horizontal product differentiation; internationaltrade; international migration; foreign direct investment;

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  1. Eaton, B Curtis & Lipsey, Richard G, 1975. "The Principle of Minimum Differentiation Reconsidered: Some New Developments in the Theory of Spatial Competition," Review of Economic Studies, Wiley Blackwell, vol. 42(1), pages 27-49, January.
  2. Boccard, N. & Wauthy, Xavier, 1997. "Export Restraints and Horizontal Product Differentiation," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1997024, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Sep 1997.
  3. Schmitt, Nicolas, 1995. "Product Imitation, Product Differentiation and International Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 583-608, August.
  4. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
  5. Luís M. B. Cabral, 2000. "Introduction to Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032864, December.
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