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

  • Daisuke Oyama

    (Graduate School of Economics - Hitotsubashi University - Hitotsubashi University, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics)

  • Yasuhiro Sato

    (Graduate School of Economics - Osaka University - Osaka University)

  • Takatoshi Tabuchi

    (Faculty of Economics - University of Tokyo - University of Tokyo)

  • Jacques-François Thisse

    (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, CORE - Center of Operation Research and Econometrics [Louvain] - UCL - Université Catholique de Louvain, CEPR - Centre for Economic Policy Research - Centre for Economic Policy Research, PSE - Paris-Jourdan Sciences Economiques - CNRS - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC))

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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Paper provided by HAL in its series PSE Working Papers with number halshs-00566786.

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Date of creation: Feb 2009
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Handle: RePEc:hal:psewpa:halshs-00566786
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  1. Oyama, Daisuke & Sato, Yasuhiro & Tabuchi, Takatoshi & Thisse, Jacques-François, 2007. "Trade and Entrepreneurship with Heterogeneous Workers," CEPR Discussion Papers 6567, C.E.P.R. Discussion Papers.
  2. Victor Ginsburgh & André De Palma & Yorgo Papageorgiou & Jacques Thisse, 1985. "The principle of Minimum Differentiation Holds under Sufficient Heterogeneity," ULB Institutional Repository 2013/151087, ULB -- Universite Libre de Bruxelles.
  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. Mary Amiti & Christopher Pissarides, 2005. "Trade and industrial location with heterogeneous labor," LSE Research Online Documents on Economics 2475, London School of Economics and Political Science, LSE Library.
  5. André van Stel & Roy Thurik & Sander Wennekers & Martin Carree, 2010. "The relationship between entrepreneurship and economic development: is it U-shaped?," Scales Research Reports H200824, EIM Business and Policy Research.
  6. Casson, Mark, 2005. "Entrepreneurship and the theory of the firm," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 327-348, October.
  7. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  8. Andrew Caplin & Barry Nalebuff, 1990. "Aggregation and Social Choice: A Mean Voter Theorem," Cowles Foundation Discussion Papers 938, Cowles Foundation for Research in Economics, Yale University.
  9. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  10. 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.
  11. 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, 02.
  12. Daisuke Oyama & Yasuhiro Sato & Takatoshi Tabuchi & Jacques-François Thisse, 2009. "On the impact of trade on industrial structures: The role of entry cost heterogeneity," PSE Working Papers halshs-00566786, HAL.
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