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External Economies and International Trade Redux

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  • Gene M. Grossman
  • Esteban Rossi-Hansberg

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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Bibliographic Info

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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Publication status: published as Gene M. Grossman & Esteban Rossi-Hansberg, 2010. "External Economies and International Trade Redux," The Quarterly Journal of Economics, MIT Press, vol. 125(2), pages 829-858, May.
Handle: RePEc:nbr:nberwo:14425

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  1. Henriksen, E & Knarvik, K.H.M. & Steen, F., 2001. "Economies of Scale in European Manufacturing Revisited," Papers 12/2001, Norwegian School of Economics and Business Administration-.
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  13. Henderson, J V, 1974. "The Sizes and Types of Cities," American Economic Review, American Economic Association, vol. 64(4), pages 640-56, September.
  14. Gene M. Grossman & Esteban Rossi‐Hansberg, 2012. "Task Trade Between Similar Countries," Econometrica, Econometric Society, vol. 80(2), pages 593-629, 03.
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Citations

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Cited by:
  1. Arnaud Costinot & Jonathan Vogel & Su Wang, 2013. "An Elementary Theory of Global Supply Chains," Review of Economic Studies, Oxford University Press, vol. 80(1), pages 109-144.
  2. Colacicco, Rudy, 2012. "The "Average" Within-Sector Firm Heterogeneity in General Oligopolistic Equilibrium," MPRA Paper 40212, University Library of Munich, Germany.
  3. Kwok Tong Soo, 2013. "The gains from external scale economies and comparative advantage," Working Papers 33867662, Lancaster University Management School, Economics Department.
  4. Soo, Kwok Tong, 2014. "Trade in intermediate goods and the division of labor," MPRA Paper 57065, University Library of Munich, Germany.
  5. Neary, J. Peter, 2009. "Two and a Half Theories of Trade," CEPR Discussion Papers 7600, C.E.P.R. Discussion Papers.
  6. Rodrigo Wagner & Andrés Zahler, 2011. "New Exports from Emerging Markets:Do Followers Beneit from Pioneers ?," Working Papers 18, Facultad de Economía y Empresa, Universidad Diego Portales.
  7. Leahy, Dermot & Neary, J Peter, 2010. "Oligopoly and Trade," CEPR Discussion Papers 8172, C.E.P.R. Discussion Papers.
  8. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Task Trade between Similar Countries," NBER Working Papers 14554, National Bureau of Economic Research, Inc.
  9. Kwok Tong Soo, 2013. "The gains from the division of labour and comparative advantage," Working Papers 33867696, Lancaster University Management School, Economics Department.
  10. Virginia Di Nino & Barry Eichengreen & Massimo Sbracia, 2011. "Real Exchange Rates, Trade, and Growth: Italy 1861-2011," Quaderni di storia economica (Economic History Working Papers) 10, Bank of Italy, Economic Research and International Relations Area.
  11. Sebastian Benz & Wilhelm Kohler, 2014. "Managerial versus Production Wages: Offshoring, Country Size, and Endowments," Canadian Journal of Economics, Canadian Economics Association, vol. 47(1), pages 250-271, February.
  12. Krzysztof Makarski, 2012. "Division of Labour and Innovation with Indivisibilities: Lessons from A. Smith," Bank i Kredyt, National Bank of Poland, Economic Institute, vol. 43(6), pages 7-28.

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