Advanced Search
MyIDEAS: Login to save this paper or follow this series

Trade, Growth and Increasing Returns to Infrastructure: The Role of the Sophisticated Monopolist

Contents:

Author Info

  • Ashok S Guha

    ()
    (Jawaharlal Nehru University)

  • Brishti Guha

    ()
    (School of Economics and Social Sciences, Singapore Management University)

Abstract

We consider a model of international trade with increasing returns in a non-traded input into industry, “infrastructure”, and show that the nature of equilibrium depends crucially on whether the infrastructure provider acts in a “naïve” manner – akin to a Level 1 agent in a cognitive hierarchy (C-H) model – or in a more sophisticated manner. Infrastructure requires a fixed investment and is produced under decreasing marginal costs, and we model two possible market forms, monopoly and Cournot oligopoly with free entry – both capable of generating pecuniary externalities in the manufacturing sector . Unlike most other work exploring the theme of increasing returns, we derive a unique closed economy equilibrium. In a small open economy, we show that with “naïve” infrastructure provider(s), multiple equilibria obtain. In this event whether or not a small open economy becomes an industrial exporter depends crucially on the presence of unexhausted economies of scale, and it is possible to have equilibria where manufactures are exported in spite of the world price of manufactures being lower than the autarky price. With a more sophisticated infrastructure provider, however, even an open economy has a unique equilibrium, which for a wide range of parameter values also involves a greater degree of industrialization than any of the “naïve” equilibria. For some parameter values, however, neither infrastructure nor manufacturing can develop and the economy remains totally agrarian.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: https://mercury.smu.edu.sg/rsrchpubupload/5667/trade.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Singapore Management University, School of Economics in its series Working Papers with number 19-2005.

as in new window
Length: 32 pages
Date of creation: Sep 2005
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Handle: RePEc:siu:wpaper:19-2005

Contact details of provider:
Postal: 90 Stamford Road, Singapore 178903
Phone: 65-6828 0832
Fax: 65-6828 0833
Web page: http://www.economics.smu.edu.sg/
More information through EDIRC

Order Information:
Email:

Related research

Keywords: Increasing returns to scale; cognitive hierarchy; multiple equilibria; uniqueness; Cournot oligopoly.;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  2. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
  3. Miguel A. Costa-Gomes & Vincent P. Crawford, 2006. "Cognition and Behavior in Two-Person Guessing Games: An Experimental Study," Levine's Bibliography 321307000000000336, UCLA Department of Economics.
  4. Vincent P. Crawford & Nagore Iriberri, 2004. "Fatal Attraction: Focality, Naivete, and Sophistication in Experimental Hide-and-Seek Games," Levine's Bibliography 122247000000000345, UCLA Department of Economics.
  5. Puga, Diego & Venables, Anthony J., 1998. "Agglomeration and Economic Development: Import Substitution Vs. Trade Liberalization," CEPR Discussion Papers 1782, C.E.P.R. Discussion Papers.
  6. Murphy, Kevin M. & Shleifer, Andrei & Vishny, Robert W., 1989. "Industrialization and the Big Push," Scholarly Articles 3606235, Harvard University Department of Economics.
  7. Colin F. Camerer & Teck-Hua Ho & Juin-Kuan Chong, 2004. "A Cognitive Hierarchy Model of Games," The Quarterly Journal of Economics, MIT Press, vol. 119(3), pages 861-898, August.
  8. Venables, Anthony J., 1996. "Trade policy, cumulative causation, and industrial development," Journal of Development Economics, Elsevier, vol. 49(1), pages 179-197, April.
  9. Martin, Philippe & Rogers, Carol Ann, 1995. "Industrial location and public infrastructure," Journal of International Economics, Elsevier, vol. 39(3-4), pages 335-351, November.
  10. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
  11. Ishikawa, Jota, 1992. "Trade patterns and gains from trade with an intermediate good produced under increasing returns to scale," Journal of International Economics, Elsevier, vol. 32(1-2), pages 57-81, February.
  12. Horst Herberg & Murray C. Kemp, 1969. "Some Implications of Variable Returns to Scale," Canadian Journal of Economics, Canadian Economics Association, vol. 2(3), pages 403-415, August.
  13. Toru Kikuchi & Tetsuro Ichikawa, 2002. "Congestible communications networks and international trade," Canadian Journal of Economics, Canadian Economics Association, vol. 35(2), pages 331-340, May.
  14. Rodriguez-Clare, Andres, 1996. "The division of labor and economic development," Journal of Development Economics, Elsevier, vol. 49(1), pages 3-32, April.
  15. Okuno-Fujiwara, Masahiro, 1988. "Interdependence of industries, coordination failure and strategic promotion of an industry," Journal of International Economics, Elsevier, vol. 25(1-2), pages 25-43, August.
  16. Panagariya, Arvind, 1981. "Variable Returns to Scale in Production and Patterns of Specialization," American Economic Review, American Economic Association, vol. 71(1), pages 221-30, March.
  17. Richard G. Harris, 1995. "Trade and Communication Costs," Canadian Journal of Economics, Canadian Economics Association, vol. 28(s1), pages 46-75, November.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:siu:wpaper:19-2005. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (QL THor).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.