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External Economies and International Trade Redux

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  • Gene M. Grossman
  • Esteban Rossi-Hansberg

Abstract

We study a world with national external economies of scale at the industry level. In contrast to the standard treatment with perfect competition and two industries, we assume Bertrand competition in a continuum of industries. With Bertrand competition, each firm can internalize the externalities from production by setting a price below those set by others. This out-of-equilibrium threat eliminates many of the "pathologies" of the standard treatment. There typically exists a unique equilibrium with trade guided by "natural" comparative advantage. And, when a country has CES preferences and any finite elasticity of substitution between goods, gains from trade are ensured.

Suggested Citation

  • Gene M. Grossman & Esteban Rossi-Hansberg, 2010. "External Economies and International Trade Redux," The Quarterly Journal of Economics, Oxford University Press, vol. 125(2), pages 829-858.
  • Handle: RePEc:oup:qjecon:v:125:y:2010:i:2:p:829-858.
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    File URL: http://hdl.handle.net/10.1162/qjec.2010.125.2.829
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    References listed on IDEAS

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    Cited by:

    1. Wei, Shang-Jin & Wei, Ziru & Xu, Jianhuan, 2014. "Assessing Market Failures in Export Pioneering Activities: A Structural Estimation Approach," CEPR Discussion Papers 10187, C.E.P.R. Discussion Papers.
    2. Wagner, Rodrigo & Zahler, Andrés, 2015. "New exports from emerging markets: Do followers benefit from pioneers?," Journal of Development Economics, Elsevier, vol. 114(C), pages 203-223.
    3. Kwok Tong Soo, 2013. "The gains from the division of labour and comparative advantage," Working Papers 33867696, Lancaster University Management School, Economics Department.
    4. Cecilia Bellora & Jean-Marc Bourgeon, 2014. "Agricultural Trade, Biodiversity Effects and Food Price Volatility," Working Papers hal-01052971, HAL.
    5. Rudy Colacicco, 2015. "Ten Years Of General Oligopolistic Equilibrium: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 29(5), pages 965-992, December.
    6. Arnaud Costinot & Jonathan Vogel & Su Wang, 2013. "An Elementary Theory of Global Supply Chains," Review of Economic Studies, Oxford University Press, vol. 80(1), pages 109-144.
    7. Sebastian Benz & Wilhelm Kohler, 2014. "Managerial versus Production Wages: Offshoring, Country Size, and Endowments," Canadian Journal of Economics, Canadian Economics Association, vol. 47(1), pages 250-271, February.
    8. Konstantin Kucheryavyy & Gary Lyn & Andrés Rodríguez-Clare, 2016. "Grounded by Gravity: A Well-Behaved Trade Model with Industry-Level Economies of Scale," NBER Working Papers 22484, National Bureau of Economic Research, Inc.
    9. Kwok Tong Soo, 2014. "The gains from external scale economies and comparative advantage," Economics Bulletin, AccessEcon, vol. 34(1), pages 84-88.
    10. Neary, J Peter, 2009. "Two and a Half Theories of Trade," CEPR Discussion Papers 7600, C.E.P.R. Discussion Papers.
    11. Soo, Kwok Tong, 2014. "Trade in intermediate goods and the division of labor," MPRA Paper 57065, University Library of Munich, Germany.
    12. Gene M. Grossman & Esteban Rossi‐Hansberg, 2012. "Task Trade Between Similar Countries," Econometrica, Econometric Society, vol. 80(2), pages 593-629, March.
    13. Virginia Di Nino & Barry Eichengreen & Massimo Sbracia, 2011. "Real Exchange Rates, Trade, and Growth: Italy 1861-2011," Quaderni di storia economica (Economic History Working Papers) 10, Bank of Italy, Economic Research and International Relations Area.
    14. Dermot Leahy & J. Peter Neary, 2010. "Oligopoly And Trade," Economics, Finance and Accounting Department Working Paper Series n215-10.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
    15. Kwok Tong Soo, 2016. "Country size and trade in intermediate goods," Working Papers 127876352, Lancaster University Management School, Economics Department.
    16. Colacicco, Rudy, 2012. "The "Average" Within-Sector Firm Heterogeneity in General Oligopolistic Equilibrium," MPRA Paper 40212, University Library of Munich, Germany.
    17. 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.
    18. Kwok Tong Soo, 2015. "International trade and the division of labour," Working Papers 100181706, Lancaster University Management School, Economics Department.
    19. Mathieu Parenti, 2015. "David vs. Goliath," Working Papers ECARES ECARES 2015-53, ULB -- Universite Libre de Bruxelles.

    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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