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Increasing Returns, the Choice of Technology, and the Gains from Trade

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  • Zhou, Haiwen

Abstract

This paper studies the implications of international trade in a general equilibrium model in which the returns to scale are internal and firms choose their production technologies. The production function generated from internal increasing returns and the choice of technology leads to the returns to scale similar to that based on external increasing returns. Trade always increases a country’s welfare in a two-sector model in which the agricultural sector has constant returns to scale and average cost in the manufacturing sector may decrease without being bounded asymptotically by a given level of marginal cost. Why a small country may lose from trade under external increasing returns is also illustrated.

Suggested Citation

  • Zhou, Haiwen, 2007. "Increasing Returns, the Choice of Technology, and the Gains from Trade," MPRA Paper 76242, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:76242
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    References listed on IDEAS

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    1. Haiwen Zhou, 2004. "The division of labor and the extent of the market," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(1), pages 195-209, July.
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    10. Ruffin, Roy J., 2003. "Oligopoly and trade: what, how much, and for whom?," Journal of International Economics, Elsevier, vol. 60(2), pages 315-335, August.
    11. Zhihao Yu, 2005. "Trade, market size, and industrial structure: revisiting the home‐market effect," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(1), pages 255-272, February.
    12. Haiwen Zhou, 2007. "Oligopolistic Competition And Economic Geography," Journal of Regional Science, Wiley Blackwell, vol. 47(5), pages 915-933, December.
    13. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Haiwen Zhou, 2018. "Impact of international trade on unemployment under oligopoly," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 27(4), pages 365-379, May.
    2. Haiwen Zhou, 2014. "International Trade with Increasing Returns in the Transportation Sector," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 9(4), pages 606-633, December.
    3. Haiwen Zhou, 2014. "Intermediate Inputs and External Economies," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 9(2), pages 216-239, June.
    4. Haiwen Zhou, 2010. "A Ricardian model of international trade with oligopolistic competition," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 19(4), pages 499-515.
    5. Haiwen Zhou, 2013. "Linkage Effects, Oligopolistic Competition, and Core-periphery," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 39(1), pages 93-110.
    6. Haiwen Zhou, 2007. "Oligopolistic Competition And Economic Geography," Journal of Regional Science, Wiley Blackwell, vol. 47(5), pages 915-933, December.
    7. Haiwen Zhou, 2010. "Oligopolistic Competition, Firm Heterogeneity, and the Impact of International Trade," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 36(1), pages 107-119.
    8. Shi, Hui, 2012. "The efficiency of government promotion of inbound tourism: The case of Australia," Economic Modelling, Elsevier, vol. 29(6), pages 2711-2718.
    9. Haiwen Zhou, 2011. "Factor Returns and Circular Causality," Southern Economic Journal, John Wiley & Sons, vol. 77(3), pages 795-805, January.
    10. Binglin Gong & Haiwen Zhou, 2014. "Financial development, the choice of technology, and comparative advantage," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(8), pages 1238-1261, December.
    11. Lei Wen & Haiwen Zhou, 2012. "Financial and Product Market Integration under Increasing Returns to Scale," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 38(1), pages 18-36.
    12. Haiwen Zhou, 2009. "Population Growth And Industrialization," Economic Inquiry, Western Economic Association International, vol. 47(2), pages 249-265, April.
    13. Haiwen Zhou, 2007. "Factor Endowment, the Choice of Technology, and the Volume of Trade," International Economic Journal, Taylor & Francis Journals, vol. 21(4), pages 593-611.
    14. Haiwen Zhou, 2010. "Globalisation and the Size Distribution of Firms," The Economic Record, The Economic Society of Australia, vol. 86(272), pages 84-94, March.

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    More about this item

    Keywords

    Choice of technology; gains from trade; increasing returns; oligopolistic competition; trade policy;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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