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A Simple Model of Trade with Heterogeneous Firms and Trade Policy

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Author Info
Fukushima, Marcelo
Kikuchi, Toru

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Abstract

This paper builds a Ricardian-Chamberlinian two-country model with heterogeneous firms in a monopolistically competitive sector in which every new entrant faces increasing fixed costs of production. There are efficiency gaps between countries in marginal and fixed costs and a country unilaterally imposes an import tariff. It is shown that an increase in tariff increases the number of firms of the tariff imposing country while decreases the number of firms of the tariff-imposed country, possibly reverting the position of net exporter of varieties. A tariff is detrimental to the tariff-imposed country. A small tariff may be beneficial to the tariff-imposing country.

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File URL: http://mpra.ub.uni-muenchen.de/9573/
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9573.

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Date of creation: 2008
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Handle: RePEc:pra:mprapa:9573

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F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies

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  1. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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This page was last updated on 2008-11-18.

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