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

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Author Info

  • 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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File URL: http://www.uclouvain.be/cps/ucl/doc/core/documents/coredp2009_46.pdf
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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2009046.

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Date of creation: 01 Aug 2009
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Handle: RePEc:cor:louvco:2009046

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Related research

Keywords: entrepreneurship; trade liberalization; externality; heterogeneity; stability;

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  1. de Palma, A, et al, 1985. "The Principle of Minimum Differentiation Holds under Sufficient Heterogeneity," Econometrica, Econometric Society, vol. 53(4), pages 767-81, July.
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Cited by:
  1. OYAMA, Daisuke & SATO, Yasuhiro & TABUCHI, Takatoshi & THISSE, Jacques-François, . "On the impact of trade on the industrial structures of nations," CORE Discussion Papers RP -2342, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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