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External Economies and International Trade Redux

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Author Info
Gene M. Grossman
Esteban Rossi-Hansberg

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Abstract

We study a world with national external economies of scale at the industry level. In contrast to the standard treatment with perfect competition and two industries, we assume Bertrand competition in a continuum of industries. In this setting, many of the "pathologies" of the standard treatment disappear. There typically exists a unique equilibrium with trade guided by "natural" comparative advantage. And, when a country has CES preferences and any finite elasticity of substitution between goods, gains from trade are assured.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14425.

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Date of creation: Oct 2008
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Handle: RePEc:nbr:nberwo:14425

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F1 - International Economics - - Trade
F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Krugman, Paul, 1995. "Increasing returns, imperfect competition and the positive theory of international trade," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 24, pages 1243-1277 Elsevier. [Downloadable!] (restricted)
  2. Choi, Jai-Young & Yu, Eden S H, 2002. "External Economies in the International Trade Theory: A Survey," Review of International Economics, Blackwell Publishing, vol. 10(4), pages 708-28, November. [Downloadable!] (restricted)
  3. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-39, December. [Downloadable!] (restricted)
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  4. James R. Markusen & James R. Melvin, 1981. "Trade, Factor Prices, and the Gains from Trade with Increasing Returns to Scale," Canadian Journal of Economics, Canadian Economics Association, vol. 14(3), pages 450-69, August. [Downloadable!] (restricted)
  5. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June. [Downloadable!] (restricted)
  6. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Task Trade between Similar Countries," NBER Working Papers 14554, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Henriksen, Espen & Steen, Frode & Ulltveit-Moe, Karen-Helene, 2001. "Economies of Scale in European Manufacturing Revisited," CEPR Discussion Papers 2896, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Segoura, Io, 1998. "Return to Scale and External Economies: Empirical Evidence from Greek Two-Digit Manufacturing Industries," Applied Economics Letters, Taylor and Francis Journals, vol. 5(8), pages 485-90, August. [Downloadable!] (restricted)
  9. Chipman, John S, 1970. "External Economies of Scale and Competitive Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 347-85, August. [Downloadable!] (restricted)
  10. Caballero, Ricardo J. & Lyons, Richard K., 1990. "Internal versus external economies in European industry," European Economic Review, Elsevier, vol. 34(4), pages 805-826, June. [Downloadable!] (restricted)
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  11. Werner Antweiler & Daniel Trefler, 2002. "Increasing Returns and All That: A View from Trade," American Economic Review, American Economic Association, vol. 92(1), pages 93-119, March. [Downloadable!]
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  12. Ethier, Wilfred J, 1982. "Decreasing Costs in International Trade and Frank Graham's Argument for Protection," Econometrica, Econometric Society, vol. 50(5), pages 1243-68, September. [Downloadable!] (restricted)
  13. Henderson, J V, 1974. "The Sizes and Types of Cities," American Economic Review, American Economic Association, vol. 64(4), pages 640-56, September. [Downloadable!] (restricted)
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  14. Helpman, Elhanan, 1984. "Increasing returns, imperfect markets, and trade theory," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 7, pages 325-365 Elsevier. [Downloadable!] (restricted)
  15. Ricardo J. Caballero & Richard K. Lyons, 1989. "The Role of External Economies in U.S. Manufacturing," NBER Working Papers 3033, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. James R. Melvin, 1969. "Increasing Returns to Scale as a Determinant of Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 2(3), pages 389-402, August. [Downloadable!] (restricted)
  17. Vei-Lin Chan & Been-Lon Chen & Kee-Nam Cheung, 1995. "External Economies In Taiwan'S Manufacturing Industries," Contemporary Economic Policy, Western Economic Association International, vol. 13(4), pages 118-130, October. [Downloadable!] (restricted)
  18. Anas, Alex, 1992. "On the birth and growth of cities: : Laissez-faire and planning compared," Regional Science and Urban Economics, Elsevier, vol. 22(2), pages 243-258, June. [Downloadable!] (restricted)
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  1. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Task Trade between Similar Countries," NBER Working Papers 14554, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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