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On the impact of trade on industrial structures : The role of entry cost heterogeneity

Author

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  • OYAMA, Daisuke

    (Graduate School of Economics, Hitotsubashi University, Japan)

  • SATO, Yasuhiro

    (Graduate School of Economics, Hitotsubashi University, Japan)

  • TABUCHI, Takatoshi

    (Faculty of Economics, University of Tokyo, Japan)

  • THISSE, Jacques-François

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

Abstract

This paper investigates the impacts of progressive trade openness, technological externalities, and heterogeneity of individuals on the formation of entrepreneurship in a two-country occupation choice model. We show that trade opening gives rise to a non-monotonic process of international specialization, in which the share of entrepreneurial firms in the large (small) country first increases (decreases) and then decreases (increases), with the global economy exhibiting first de-industrialization and then re-industrialization. When countries have the same size, we also show that strong technological externalities make the symmetric equilibrium unstable, generating equilibrium multiplicity, while sufficient heterogeneity of individuals leads to the stability and uniqueness of the symmetric equilibrium.
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Suggested Citation

  • OYAMA, Daisuke & SATO, Yasuhiro & TABUCHI, Takatoshi & THISSE, Jacques-François, 2009. "On the impact of trade on industrial structures : The role of entry cost heterogeneity," LIDAM Discussion Papers CORE 2009046, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2009046
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    Cited by:

    1. Adolfo Cristóbal Campoamor, 2019. "Gradual trade liberalization in a North–South model of the product cycle," Journal of Economics, Springer, vol. 127(3), pages 265-292, August.
    2. Zeng, Dao-Zhi & Uchikawa, Tomohiro, 2014. "Ubiquitous inequality: The home market effect in a multicountry space," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 225-233.
    3. Daisuke Oyama & Yasuhiro Sato & Takatoshi Tabuchi & Jacques‐François Thisse, 2011. "On the impact of trade on the industrial structures of nations," International Journal of Economic Theory, The International Society for Economic Theory, vol. 7(1), pages 93-109, March.
    4. Behrens, Kristian & Zhelobodko, Evgeny & Pokrovsky, Dmitry, 2014. "Market Size, Entrepreneurship, and Income Inequality," CEPR Discussion Papers 9831, C.E.P.R. Discussion Papers.
    5. José M. Gaspar, 2018. "A prospective review on New Economic Geography," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 61(2), pages 237-272, September.
    6. Daisuke Oyama & Yasuhiro Sato & Takatoshi Tabuchi & Jacques‐François Thisse, 2011. "On the impact of trade on the industrial structures of nations," International Journal of Economic Theory, The International Society for Economic Theory, vol. 7(1), pages 93-109, March.
    7. Xi Yang, 2014. "Occupational Choice and Income Inequalities under Regional Integration," Review of Development Economics, Wiley Blackwell, vol. 18(2), pages 313-325, May.

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    More about this item

    Keywords

    entrepreneurship; trade liberalization; externality; heterogeneity; stability;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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