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Increasing returns, monopolistic competition, and international trade: Revisiting gains from trade

Author

Listed:
  • Sergey Kokovin

    (Sobolev Institute of Mathematics - SB RAS - Siberian Branch of the Russian Academy of Sciences)

  • Pavel Molchanov

    (HSE - Vysšaja škola èkonomiki = National Research University Higher School of Economics [Moscow], AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Igor Bykadorov

    (Sobolev Institute of Mathematics - SB RAS - Siberian Branch of the Russian Academy of Sciences, NSU - Novosibirsk State University)

Abstract

We study the canonical Krugman (1979) trade model with non-CES preferences that yield autarky at finite trade costs. We prove a non-monotone impact of gradual trade liberalization. At first, near autarky, emerging trade reduces world welfare, while at free trade it becomes large enough to be beneficial (Krugman's result). This non-monotonicity persists under heterogenous firms. The harmful small-scale trade is explained by variable markups and underpriced imports, which become socially excessive. Unlike protectionists, we argue that "liberalization should go far". On the other hand, we show that anti-dumping measures can be viewed as a remedy for the aforementioned imports distortion.

Suggested Citation

  • Sergey Kokovin & Pavel Molchanov & Igor Bykadorov, 2022. "Increasing returns, monopolistic competition, and international trade: Revisiting gains from trade," Post-Print hal-03740561, HAL.
    • Handle: RePEc:hal:journl:hal-03740561
    DOI: 10.1016/j.jinteco.2022.103595
    Note: View the original document on HAL open archive server: https://amu.hal.science/hal-03740561
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    Cited by:

    1. Egger, Peter H. & Huang, Ruobing, 2025. "Market versus optimum allocation in open economies," Journal of Economic Theory, Elsevier, vol. 228(C).
    2. Lee, Chien-Chiang & Hussain, Jafar, 2022. "Carbon neutral sustainability and green development during energy consumption," Innovation and Green Development, Elsevier, vol. 1(1).
    3. Lin, Kefu & Zeng, Dao-Zhi, 2023. "International trade with binary preferences and heterogeneous productivity," Economic Modelling, Elsevier, vol. 122(C).
    4. Fereira, Semertesides Bitica & Cateia, Júlio Vicente, 2023. "Trade reform, infrastructure investment, and structural transformation in Africa: Evidence from Guinea-Bissau," Emerging Markets Review, Elsevier, vol. 55(C).
    5. Edivo Oliveira de Almeida & Julio Vicente Cateia & William Barbosa & Clailton Ataides de Freitas, 2024. "Trade liberalization and total factor productivity in Brazil: A vecm modeling," PLOS ONE, Public Library of Science, vol. 19(11), pages 1-16, November.

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    Keywords

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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