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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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  11. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Task Trade between Similar Countries," NBER Working Papers 14554, National Bureau of Economic Research, Inc.
  12. 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.
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Cited by:
  1. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Task Trade between Similar Countries," NBER Working Papers 14554, National Bureau of Economic Research, Inc.
  2. Kwok Tong Soo, 2013. "The gains from the division of labour and comparative advantage," Working Papers 33867696, Lancaster University Management School, Economics Department.
  3. 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.
  4. Wagner, Rodrigo & Zahler, Andrés, 2011. "New exports from emerging markets: do followers benefit from pioneers ?," MPRA Paper 30312, University Library of Munich, Germany.
  5. Sebastian Benz & Wilhelm Kohler, 2010. "Managerial versus Production Wages: Offshoring, Country Size and Endowments," CESifo Working Paper Series 3292, CESifo Group Munich.
  6. Colacicco, Rudy, 2012. "The "Average" Within-Sector Firm Heterogeneity in General Oligopolistic Equilibrium," MPRA Paper 40212, University Library of Munich, Germany.
  7. 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.
  8. Neary, J. Peter, 2009. "Two and a Half Theories of Trade," CEPR Discussion Papers 7600, C.E.P.R. Discussion Papers.
  9. Kwok Tong Soo, 2014. "The gains from external scale economies and comparative advantage," Economics Bulletin, AccessEcon, vol. 34(1), pages 84-88.
  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. Peter Neary & Dermot Leahy, 2010. "Oligopoly and Trade," Economics Series Working Papers 517, University of Oxford, Department of Economics.

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