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

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  • Daisuke Oyama

    (Graduate School of Economics - Hitotsubashi University - Hitotsubashi University, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Yasuhiro Sato

    (Graduate School of Economics - Osaka University - Osaka University)

  • Takatoshi Tabuchi

    (Faculty of Economics - University of Tokyo - University of Tokyo)

  • Jacques-François Thisse

    (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain (UCL) - Belgique, CEPR - Centre for Economic Policy Research - Centre for Economic Policy Research, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris)

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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Bibliographic Info

Paper provided by HAL in its series PSE Working Papers with number halshs-00566786.

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Date of creation: Feb 2009
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Handle: RePEc:hal:psewpa:halshs-00566786

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Related research

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

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  1. Victor Ginsburgh & André De Palma & Yorgo Papageorgiou & Jacques-François Thisse, 1985. "The principle of minimum differentiation holds under sufficient heterogeneity," ULB Institutional Repository 2013/1759, ULB -- Universite Libre de Bruxelles.
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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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