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Increasing Returns, the Choice of Technology, and the Gains from Trade

Listed author(s):
  • Haiwen Zhou

    ()

    (Department of Economics, Old Dominion University, Norfolk, VA 23529, USA)

This paper studies the implications of international trade in a general equilibrium model in which the returns to scale are internal and firms choose their production technologies. The production function generated from internal increasing returns and the choice of technology leads to returns to scale similar to those based on external increasing returns. Trade always increases a country's welfare in a two-sector model in which the agricultural sector has constant returns to scale and average cost in the manufacturing sector may decrease without being bounded asymptotically by a given level of marginal cost. Why a small country may lose from trade under external increasing returns is also illustrated.

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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 74 (2007)
Issue (Month): 2 (October)
Pages: 581-600

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Handle: RePEc:sej:ancoec:v:74:2:y:2007:p:581-600
Contact details of provider: Web page: http://www.southerneconomic.org/

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  1. Markusen, James R. & Melvin, James R. & Maskus, Keith E. & Kaempfer, William, 1995. "International trade: theory and evidence," MPRA Paper 21989, University Library of Munich, Germany.
  2. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
  3. Ruffin, Roy J., 2003. "Oligopoly and trade: what, how much, and for whom?," Journal of International Economics, Elsevier, vol. 60(2), pages 315-335, August.
  4. Zhihao Yu, 2005. "Trade, market size, and industrial structure: revisiting the home-market effect," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 255-272, February.
  5. Haiwen Zhou, 2004. "The division of labor and the extent of the market," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(1), pages 195-209, 07.
  6. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 383-406.
  7. Zhou, Haiwen, 2006. "Intra-firm Specialization, Income Distribution, and International Trade," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 21, pages 577-592.
  8. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc.
  9. Luis A. Rivera-Batiz & Paul M. Romer, 1991. "Economic Integration and Endogenous Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 531-555.
  10. Ethier, Wilfred J, 1982. "Decreasing Costs in International Trade and Frank Graham's Argument for Protection," Econometrica, Econometric Society, vol. 50(5), pages 1243-1268, September.
  11. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
  12. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 369-405.
  13. Venables, Anthony J., 1985. "Trade and trade policy with imperfect competition: The case of identical products and free entry," Journal of International Economics, Elsevier, vol. 19(1-2), pages 1-19, August.
  14. Horstmann, Ignatius J. & Markusen, James R., 1986. "Up the average cost curve: Inefficient entry and the new protectionism," Journal of International Economics, Elsevier, vol. 20(3-4), pages 225-247, May.
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