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Love Of Variety And Scale Implications: An Empirical Evaluation

  • YONGSHENG ZHANG

    ()

    (Development Research Centre of the State Council, China)

  • XUEYAN ZHAO

    ()

    (Department of Econometrics and Business Statistics, Monash University, Clayton, Victoria 3800, Australia)

Following the empirical work of Jones (1995a,b) that test the scale effects predicted by the AK models and the R&D based models, this paper tests the scale effects of a major new trade model, the Krugman (1979) version of the Dixit-Stiglitz (1977) model, using the Yang-Heijdra (1993) formula for own price elasticity of demand. Time series data from six economies are used to test the relationships between the average size of firms, population and per capita income. The results show that the scale effects predicted by the revised Krugman model are incompatible with empirical evidence.

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Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Division of Labor & Transaction Costs.

Volume (Year): 01 (2006)
Issue (Month): 02 ()
Pages: 185-201

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Handle: RePEc:wsi:dltcxx:v:01:y:2006:i:02:p:185-201
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