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Trade patterns and export pricing under non-CES preferences

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  • Kichko, Sergey
  • Kokovin, Sergey
  • Zhelobodko, Evgeny

Abstract

We develop a two-factor, two-sector trade model of monopolistic competition with variable elasticity of substitution. Firms' profits and sizes may increase or decrease with market integration depending on the degree of asymmetry between countries. The country in which capital is relatively abundant is a net exporter of the manufactured good, although both firm sizes and profits are lower in this country than in the country where capital is relatively scarce. The pricing policy adopted by firms depends neither on capital endowment nor country asymmetry. It is determined by the nature of preferences: when demand elasticity increases (decreases) with consumption, firms practice dumping (reverse-dumping).

Suggested Citation

  • Kichko, Sergey & Kokovin, Sergey & Zhelobodko, Evgeny, 2014. "Trade patterns and export pricing under non-CES preferences," Journal of International Economics, Elsevier, vol. 94(1), pages 129-142.
  • Handle: RePEc:eee:inecon:v:94:y:2014:i:1:p:129-142 DOI: 10.1016/j.jinteco.2014.06.004
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    Cited by:

    1. Daqing Yao & John Whalley, 2015. "Assessing the Effects of the MFA/ATC from US and World Trade Data after Its Removal," NBER Working Papers 21299, National Bureau of Economic Research, Inc.
    2. Wang, Xichao & Gibson, Mark J., 2015. "Trade, non-homothetic preferences, and the impact of country size on wages," Economics Letters, Elsevier, vol. 132(C), pages 121-124.
    3. Kazunobu Hayakawa & Nuttawut Laksanapanyakul & Hiroshi Mukunoki & Shujiro Urata, 2016. "Impact of Free Trade Agreement Utilisation on Import Prices," Working Papers DP-2016-24, Economic Research Institute for ASEAN and East Asia (ERIA).
    4. Behrens, Kristian & Pokrovsky, Dmitry & Zhelobodko, Evgeny, 2014. "Market Size, Entrepreneurship, and Income Inequality," CEPR Discussion Papers 9831, C.E.P.R. Discussion Papers.
    5. Mai Dao & Davide Furceri & Prakash Loungani, 2014. "Regional Labor Market Adjustments in the United States," IMF Working Papers 14/211, International Monetary Fund.
    6. Osharin Alexander & Verbus Valery, 2015. "Heterogeneous consumers and market structure in a monopolistically competitive setting," EERC Working Paper Series 15/03e, EERC Research Network, Russia and CIS.
    7. Alexander Osharin & Valery Verbus, 2016. "Heterogeneous consumers and trade patterns in a monopolistically competitive setting," HSE Working papers WP BRP 131/EC/2016, National Research University Higher School of Economics.

    More about this item

    Keywords

    Two-factor trade model; Monopolistic competition; Variable markups;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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