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Micro-foundations of External Economies


  • James R. Markusen


The first purpose of this paper is to specify certain microeconomic determinants of "external" economies and then analyze the consequences of these economies for production and welfare in a simple general-equilibrium model. The second purpose is to explore the circumstances under which the implied industry production functions are consistent with the ad hoc specifications used in trade theory and growth theory. The motivation for the latter exercise is that, despite progress in general-equilibrium analysis of internal economies, these industry production functions allow the author to capture the very powerful analytical advantages of competitive general-equilibrium and duality theory.

Suggested Citation

  • James R. Markusen, 1990. "Micro-foundations of External Economies," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 495-508, August.
  • Handle: RePEc:cje:issued:v:23:y:1990:i:3:p:495-508

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    References listed on IDEAS

    1. Choudhri, Ehsan U & Kochin, Levis A, 1980. "The Exchange Rate and the International Transmission of Business Cycle Disturbances: Some Evidence from the Great Depression," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 565-574, November.
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    Cited by:

    1. Balistreri, Edward J., 2002. "Operationalizing equilibrium unemployment: A general equilibrium external economies approach," Journal of Economic Dynamics and Control, Elsevier, vol. 26(3), pages 347-374, March.
    2. Anwar, Sajid, 2005. "Variable labour supply, specialisation-based external economies, and capital inflow," International Review of Economics & Finance, Elsevier, vol. 14(4), pages 427-437.
    3. Fæhn, Taran & Gómez-Plana, Antonio G. & Kverndokk, Snorre, 2009. "Can a carbon permit system reduce Spanish unemployment?," Energy Economics, Elsevier, vol. 31(4), pages 595-604, July.
    4. Haiwen Zhou, 2014. "Intermediate Inputs and External Economies," Frontiers of Economics in China, Higher Education Press, vol. 9(2), pages 216-239, June.
    5. repec:clg:wpaper:2013-13 is not listed on IDEAS
    6. Anwar, Sajid, 2001. "Government spending on public infrastructure, prices, production and international trade," The Quarterly Review of Economics and Finance, Elsevier, vol. 41(1), pages 19-31.
    7. Anwar, Sajid, 2006. "Provision of public infrastructure, foreign investment and welfare in the presence of specialisation-based external economies," Economic Modelling, Elsevier, vol. 23(1), pages 142-156, January.
    8. Oscar Bajo-Rubio & Antonio G. GÛmez-Plana, "undated". "Reducing social contributions on unskilled labour as a way of fighting unemployment: An empirical evaluation for the case of Spain," Studies on the Spanish Economy 107, FEDEA.
    9. Snorre Kverndokk & Knut Rosendahl & Thomas Rutherford, 2004. "Climate Policies and Induced Technological Change: Which to Choose, the Carrot or the Stick?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 27(1), pages 21-41, January.
    10. Joseph F. Francois & Douglas Nelson, 2002. "A Geometry Of Specialisation," Economic Journal, Royal Economic Society, vol. 112(481), pages 649-678, July.
    11. repec:clg:wpaper:2013-19 is not listed on IDEAS
    12. Francois, Joseph & Grier, Kevin Blaine & Nelson, Douglas, 2004. "Globalization, Roundaboutness and Relative Wages," CEPR Discussion Papers 4406, C.E.P.R. Discussion Papers.
    13. Francois, Joseph & Nelson, Doug R, 2000. "Victims of Progress: Economic Integration, Specialization and Wages for Unskilled Labour," CEPR Discussion Papers 2527, C.E.P.R. Discussion Papers.
    14. repec:clg:wpaper:2013-06 is not listed on IDEAS
    15. C J Krizan, 1998. "Industrial Spillovers in Developing Countries: Plant-level Evidence From Chile, Mexico, and Morocco," Working Papers 98-1, Center for Economic Studies, U.S. Census Bureau.
    16. M. Scott Taylor & Juan Moreno Cruz, "undated". "Back to the Future of Green Powered Economies," Working Papers 2014-69, Department of Economics, University of Calgary, revised 29 Sep 2014.
    17. repec:got:cegedp:20 is not listed on IDEAS
    18. Henry Overman & Stephen Redding & Anthony J. Venables, 2001. "The Economic Geography of Trade, Production, and Income: A Survey of Empirics," CEP Discussion Papers dp0508, Centre for Economic Performance, LSE.
    19. Holtz-Eakin, Douglas & Lovely, Mary E., 1996. "Technological linkages, market structure, and production policies," Journal of Public Economics, Elsevier, vol. 61(1), pages 73-86, July.
    20. C J Krizan, 1997. "An Applied General Equilibrium Model Of Moroccan Trade Liberalization Featuring External Economies," Working Papers 97-16, Center for Economic Studies, U.S. Census Bureau.
    21. Krzysztof Makarski, 2012. "Division of Labour and Innovation with Indivisibilities: Lessons from A. Smith," Bank i Kredyt, Narodowy Bank Polski, vol. 43(6), pages 7-28.
    22. Eckel, Carsten, 2003. "Does globalization lead to specialization?," Center for European, Governance and Economic Development Research Discussion Papers 20, University of Goettingen, Department of Economics.
    23. Sajid Anwar, 2001. "Commercial policy and international factor mobility in the presence of monopolistic competition," Journal of Economics, Springer, vol. 74(3), pages 259-281, October.
    24. Eckel, Carsten, 2008. "Globalization and specialization," Journal of International Economics, Elsevier, vol. 75(1), pages 219-228, May.
    25. Oscar Bajo-Rubio & Antonio G. Gómez-Plana, 2004. "Reducing Social Contributions for Unskilled Labor as a Way of Fighting Unemployment: An Empirical Evaluation for the Case of Spain," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(2), pages 160-160, August.

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