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Intra-industry Trade and the Variety of Home Products

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  • Chien-Fu Chou
  • Oz Shy

Abstract

The authors provide a rigorous general equilibrium analysis of the welfare effects of international trade in the presence of differentiated home nontraded products as well as tradable products. They extend the standard monopolisitic competition framework to incorporate differentiated nontraded products and demonstrate that, in general, the gains-from-trade proposition applies also to this framework. However, the authors also show that trade may reduce the variety of home products and, thus, abstracting from all sources of gains from trade other than variety effects, they show that only in a very extreme case trade may make all countries worse off.

Suggested Citation

  • Chien-Fu Chou & Oz Shy, 1991. "Intra-industry Trade and the Variety of Home Products," Canadian Journal of Economics, Canadian Economics Association, vol. 24(2), pages 405-416, May.
  • Handle: RePEc:cje:issued:v:24:y:1991:i:2:p:405-16
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    Cited by:

    1. Iwasa, Kazumichi & Kikuchi, Toru, 2007. "Indirect Network Effects, Trade Liberalization, and Excess Standardization," MPRA Paper 4399, University Library of Munich, Germany.
    2. Kazumichi Iwasa & Toru Kikuchi, 2009. "Indirect network effects and the impact of trade liberalization: A note," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 18(4), pages 541-552.
    3. Glazer, Amihai & Gradstein, Mark & Ranjan, Priya, 2003. "Consumption variety and urban agglomeration," Regional Science and Urban Economics, Elsevier, vol. 33(6), pages 653-661, October.

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