Perfect Competition and Intra-Industry Trade
AbstractThe paper presents a formal study of how risk aversion can be applied to analysis of international trade. It seeks to illustrate, amongst other things, that risk-averse firms operating in perfectly competitive markets with uncertainty of demand tend to diversify markets and that this provides the basis for international trade in identical commodities between identical countries. The paper argues that such trade may be welfare-improving, despite efficiency losses due to cross-hauling and transportation costs. Moreover, the analysis shows that reduction of tariff per unit of imported goods (e.g., due to the organization of custom unions) increases trade flows but does not necessarily improve total welfare. Therefore, in some particular cases, the use of sophisticated government intervention can lead to better outcomes than can free trade. 5
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Bibliographic InfoPaper provided by CASE-Center for Social and Economic Research in its series CASE-CEU Working Papers with number 0040.
Length: 24 pages
Date of creation: 2001
Date of revision:
reasons for trade; intra-industry trade; demand uncertainty; risk aversion; market diversification;
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"Intra-industry trade in identical commodities,"
Journal of International Economics, Elsevier,
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- James Brander, 1980. "Intra-Industry Trade in Identical Commodities," Working Papers, Queen's University, Department of Economics 380, Queen's University, Department of Economics.
- Gormsen, Christian, 2009.
"Intransparent Markets and Intra-Industry Trade,"
Working Papers, University of Aarhus, Aarhus School of Business, Department of Economics
09-20, University of Aarhus, Aarhus School of Business, Department of Economics.
- Christian Gormsen, 2012. "Intransparent Markets and Intra-Industry Trade," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00678264, HAL.
- Christian Gormsen, 2012. "Intransparent markets and intra-industry trade," Documents de travail du Centre d'Economie de la Sorbonne, UniversitÃ© PanthÃ©on-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 12017, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- repec:hal:journl:halshs-00678264 is not listed on IDEAS
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