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Monopolistic Competition, International Trade and Firm Heterogeneity - a Life Cycle Perspective

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Author Info

  • Hansen, Jørgen Drud

    ()
    (Department of Economics, Aarhus School of Business)

  • Kvedaras, Virmantas

    (Department of Econometric Analysis)

  • Nielsen, Jørgen Ulff-Møller

    ()
    (Department of Economics, Aarhus School of Business)

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    Abstract

    This paper presents a dynamic international trade model based on monopolistic competition, where observed intra-industry differences at a given point in time reflect different stages of the firm’s life cycle. New product varieties of still higher quality enter the market every period rendering old varieties obsolescent in a process of creative destruction. For given technology (variety) production costs decrease after an infant period due to learning. It is shown that several patterns of exports may arise depending primarily on the size of fixed trade costs. At a given point in time firms therefore differ due to different age, although all firms are symmetric in a life cycle perspective. The paper thus offers an alternative view on firm heterogeneity compared with other recent papers, where productivity differences appear as an outcome of a stochastic process.

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    File URL: http://www.hha.dk/nat/wper/08-7_jdhajum.pdf
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    Bibliographic Info

    Paper provided by University of Aarhus, Aarhus School of Business, Department of Economics in its series Working Papers with number 08-7.

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    Length: 39 pages
    Date of creation: 01 May 2008
    Date of revision:
    Handle: RePEc:hhs:aareco:2008_007

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    Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
    Phone: +45 89 486396
    Fax: +45 8615 5175
    Web page: http://www.asb.dk/departments/nat.aspx
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    Related research

    Keywords: Product innovations; learning; creative destruction; firm heterogeneity; export performance;

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    1. Montagna, Catia, 2001. "Efficiency Gaps, Love of Variety and International Trade," Economica, London School of Economics and Political Science, vol. 68(269), pages 27-44, February.
    2. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March.
    3. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
    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. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
    6. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
    7. C. Lanier Benkard, 2000. "Learning and Forgetting: The Dynamics of Aircraft Production," American Economic Review, American Economic Association, vol. 90(4), pages 1034-1054, September.
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