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Trade, Growth and Increasing Returns to Infrastructure: The Role of the Sophisticated Monopolist

  • Ashok S. Guha

    ()

    (Indian Statistical Institute, India)

  • Brishti Guha

    ()

    (School of Economics, Singapore Management University)

Equilibrium in international trade with increasing returns in infrastructure depends on whether the infrastructure provider is "naïve" or sophisticated. A monopolist produces infrastructure under decreasing cost using fixed equipment. Unlike similar work, we derive a unique closed-economy equilibrium. In a small open economy, with "naïve" infrastructure provider(s), multiple equilibria obtain. The industrial export potential of the economy depends on unexhausted economies of scale, and equilibria are possible where manufactures are exported despite an autarky price higher than the world price. With a sophisticated infrastructure provider, even an open economy has a unique equilibrium, which, at least as long as economies of scale are unexhausted, also involves more industrialization than the "naïve" equilibria. Access to the unlimited world market is necessary for significant industrialization but is not sufficient: one may also require "Schumpeterian" entrepreneurs, monopolists with a panoramic vision of the economy and of their catalytic role in it. Copyright � 2009 The Authors. Journal compilation � 2009 Blackwell Publishing Ltd.

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Paper provided by Singapore Management University, School of Economics in its series Working Papers with number 03-2008.

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Length: 33 pages
Date of creation: Feb 2008
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Handle: RePEc:siu:wpaper:03-2008
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