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Love Of Variety And Scale Implications: An Empirical Evaluation

Author

Listed:
  • YONGSHENG ZHANG

    (Development Research Centre of the State Council, China)

  • XUEYAN ZHAO

    (Department of Econometrics and Business Statistics, Monash University, Clayton, Victoria 3800, Australia)

Abstract

Following the empirical work of Jones (1995a,b) that test the scale effects predicted by the AK models and the R&D based models, this paper tests the scale effects of a major new trade model, the Krugman (1979) version of the Dixit-Stiglitz (1977) model, using the Yang-Heijdra (1993) formula for own price elasticity of demand. Time series data from six economies are used to test the relationships between the average size of firms, population and per capita income. The results show that the scale effects predicted by the revised Krugman model are incompatible with empirical evidence.

Suggested Citation

  • Yongsheng Zhang & Xueyan Zhao, 2006. "Love Of Variety And Scale Implications: An Empirical Evaluation," Division of Labor & Transaction Costs (DLTC), World Scientific Publishing Co. Pte. Ltd., vol. 1(02), pages 185-201.
    • Handle: RePEc:wsi:dltcxx:v:01:y:2006:i:02:n:s0219871106000123
    DOI: 10.1142/S0219871106000123
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    References listed on IDEAS

    as
    1. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
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    More about this item

    Keywords

    Scale effect; firm size; the Krugman model; the Dixit-Stiglitz model;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D - Microeconomics
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • F - International Economics
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • L - Industrial Organization
    • O - Economic Development, Innovation, Technological Change, and Growth

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