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On the impact of trade on industrial structures : The role of entry cost heterogeneity

Author

Listed:
  • OYAMA, Daisuke

    () (Graduate School of Economics, Hitotsubashi University, Japan)

  • SATO, Yasuhiro

    () (Graduate School of Economics, Hitotsubashi University, Japan)

  • TABUCHI, Takatoshi

    () (Faculty of Economics, University of Tokyo, Japan)

  • THISSE, Jacques-François

    () (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

Abstract

This paper investigates the impacts of progressive trade openness, technological externalities, and heterogeneity of individuals on the formation of entrepreneurship in a two-country occupation choice model. We show that trade opening gives rise to a non-monotonic process of international specialization, in which the share of entrepreneurial firms in the large (small) country first increases (decreases) and then decreases (increases), with the global economy exhibiting first de-industrialization and then re-industrialization. When countries have the same size, we also show that strong technological externalities make the symmetric equilibrium unstable, generating equilibrium multiplicity, while sufficient heterogeneity of individuals leads to the stability and uniqueness of the symmetric equilibrium.
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Suggested Citation

  • OYAMA, Daisuke & SATO, Yasuhiro & TABUCHI, Takatoshi & THISSE, Jacques-François, 2009. "On the impact of trade on industrial structures : The role of entry cost heterogeneity," CORE Discussion Papers 2009046, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2009046
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    File URL: http://www.uclouvain.be/cps/ucl/doc/core/documents/coredp2009_46.pdf
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    References listed on IDEAS

    as
    1. Amiti, Mary & Pissarides, Christopher A., 2005. "Trade and industrial location with heterogeneous labor," Journal of International Economics, Elsevier, vol. 67(2), pages 392-412, December.
    2. Daisuke Oyama & Yasuhiro Sato & Takatoshi Tabuchi & Jacques‐François Thisse, 2011. "On the impact of trade on the industrial structures of nations," International Journal of Economic Theory, The International Society for Economic Theory, vol. 7(1), pages 93-109, March.
    3. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
    4. Wennekers, Sander & van Stel, André & Carree, Martin & Thurik, Roy, 2010. "The Relationship between Entrepreneurship and Economic Development: Is It U-Shaped?," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 6(3), pages 167-237, July.
    5. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    6. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    7. Elias Dinopoulos & Kenji Fujiwara & Koji Shimomura, 2011. "International Trade and Volume Patterns under Quasilinear Preferences," Review of Development Economics, Wiley Blackwell, vol. 15(1), pages 154-167, February.
    8. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Social Choice: A Mean Voter Theorem," Econometrica, Econometric Society, vol. 59(1), pages 1-23, January.
    9. Casson, Mark, 2005. "Entrepreneurship and the theory of the firm," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 327-348, October.
    10. de Palma, A, et al, 1985. "The Principle of Minimum Differentiation Holds under Sufficient Heterogeneity," Econometrica, Econometric Society, vol. 53(4), pages 767-781, July.
    11. Audretsch, David B. & Feldman, Maryann P., 2004. "Knowledge spillovers and the geography of innovation," Handbook of Regional and Urban Economics,in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 61, pages 2713-2739 Elsevier.
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    Cited by:

    1. Daisuke Oyama & Yasuhiro Sato & Takatoshi Tabuchi & Jacques‐François Thisse, 2011. "On the impact of trade on the industrial structures of nations," International Journal of Economic Theory, The International Society for Economic Theory, vol. 7(1), pages 93-109, March.
    2. Behrens, Kristian & Pokrovsky, Dmitry & Zhelobodko, Evgeny, 2014. "Market Size, Entrepreneurship, and Income Inequality," CEPR Discussion Papers 9831, C.E.P.R. Discussion Papers.
    3. Daisuke Oyama & Yasuhiro Sato & Takatoshi Tabuchi & Jacques‐François Thisse, 2011. "On the impact of trade on the industrial structures of nations," International Journal of Economic Theory, The International Society for Economic Theory, vol. 7(1), pages 93-109, March.
    4. Zeng, Dao-Zhi & Uchikawa, Tomohiro, 2014. "Ubiquitous inequality: The home market effect in a multicountry space," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 225-233.
    5. Xi Yang, 2014. "Special Issue: Issues in Asia. Guest Editor: Laixun Zhao," Review of Development Economics, Wiley Blackwell, vol. 18(2), pages 313-325, May.

    More about this item

    Keywords

    entrepreneurship; trade liberalization; externality; heterogeneity; stability;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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