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National Differentiation and Industry-Wide Scale Effects

Author

Listed:
  • Ahmad Lashkaripour

    (Indiana University)

  • Volodymyr Lugovskyy

    (Indiana University)

Abstract

In a large class of trade models, trading patterns and the corresponding welfare gains depend on the scale elasticity—a deep parameter that governs industry-wide returns to scale. Noting that the scale elasticity depends on the extent to which technologies or products are nationally differentiated, we develop an empirical strategy to structurally estimate the scale elasticity across various industries. A trade model that features our estimated scale elasticity captures the negative relationship between population size and real income, which eludes standard trade models. Furthermore, we find that scale elasticities display considerable inter-industry variation. Accounting for these previously overlooked variations greatly modifies the estimated gains from trade.

Suggested Citation

  • Ahmad Lashkaripour & Volodymyr Lugovskyy, 2017. "National Differentiation and Industry-Wide Scale Effects," CAEPR Working Papers 2017-004, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
  • Handle: RePEc:inu:caeprp:2017004
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    References listed on IDEAS

    as
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