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Monopolistic competition and international trade theory

Listed author(s):
  • J. Peter Neary

Almost twenty-five years after the appearance of Dixit and Stiglitz’s paper on monopolistic competition and optimum product diversity, I try to take stock of the progres which has been made in applying their approach to international trade theory. I review the principal applications to trade theory and present a new one: by embedding DS preferences in a specific-factors framework, I sketch a model which shows how multinational corporations can emerge even between countries with similar factor endowments. Finally, I address some limitations of the approach, including its treatment of variety, returns to scale, entry and firms’ strategies.

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File URL: http://hdl.handle.net/10197/1254
File Function: First version, 2000
Download Restriction: no

Paper provided by School of Economics, University College Dublin in its series Working Papers with number 200025.

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Date of creation: Dec 2000
Handle: RePEc:ucn:wpaper:200025
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UCD, Belfield, Dublin 4

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Web page: http://www.ucd.ie/economics

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  1. Egbert Dierker & Birgit Grodal, 1998. "The Price Normalization Problem in Imperfect Competition and the objective of the Firm," CIE Discussion Papers 1998-08, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  2. Kiminori Matsuyama, 1995. "Complementarities and Cumulative Processes in Models of Monopolistic Competition," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 701-729, June.
  3. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-471, June.
  4. J. Peter Neary, 2001. "Competition, trade and wages," Working Papers 200020, School of Economics, University College Dublin.
  5. Benassy, Jean-Pascal, 1996. "Taste for variety and optimum production patterns in monopolistic competition," Economics Letters, Elsevier, vol. 52(1), pages 41-47, July.
  6. Edward E. Leamer & James Levinsohn, 1994. "International Trade Theory: The Evidence," NBER Working Papers 4940, National Bureau of Economic Research, Inc.
  7. J. Peter Neary, 1995. "Factor Mobility and International Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 28(s1), pages 4-23, November.
  8. Donald R. Davis & David E. Weinstein, 1998. "Market Access, Economic Geography, and Comparative Advantage: An Empirical Assessment," NBER Working Papers 6787, National Bureau of Economic Research, Inc.
  9. Roberts, John & Sonnenschein, Hugo, 1977. "On the Foundations of the Theory of Monopolistic Competition," Econometrica, Econometric Society, vol. 45(1), pages 101-113, January.
  10. Alan V. Deardorff, 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Working Papers 5377, National Bureau of Economic Research, Inc.
  11. J.Peter Neary, 2001. "Of Hype and Hyperbolas: Introducing the New Economic Geography," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 536-561, June.
  12. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
  13. Elhanan Helpman, 1998. "The Structure of Foreign Trade," Harvard Institute of Economic Research Working Papers 1848, Harvard - Institute of Economic Research.
  14. Caves, Richard E, 1971. "International Corporations: The Industrial Economics of Foreign Investment," Economica, London School of Economics and Political Science, vol. 38(149), pages 1-27, February.
  15. Wilfred J. Ethier, 1986. "The Multinational Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 805-833.
  16. Colin Lawrence & Pablo T. Spiller, 1983. "Product Diversity, Economies of Scale, and International Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 98(1), pages 63-83.
  17. Helpman, Elhanan, 1987. "Imperfect competition and international trade: Evidence from fourteen industrial countries," Journal of the Japanese and International Economies, Elsevier, vol. 1(1), pages 62-81, March.
  18. d'ASPREMONT, C. & DOS SANTOS FERREIRA, R. & GÉRARD-VARET, L.-A., "undated". "On the Dixit-Stiglitz model of monopolistic competition," CORE Discussion Papers RP 1211, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  19. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
  20. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  21. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  22. James R. Markusen & Anthony J. Venables, 1995. "Multinational Firms and The New Trade Theory," NBER Working Papers 5036, National Bureau of Economic Research, Inc.
  23. Paul Krugman, 1986. "Industrial Organization and International Trade," NBER Working Papers 1957, National Bureau of Economic Research, Inc.
  24. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Oxford University Press, vol. 43(2), pages 217-235.
  25. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
  26. 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.
  27. Neary, J Peter, 1978. "Short-Run Capital Specificity and the Pure Theory of International Trade," Economic Journal, Royal Economic Society, vol. 88(351), pages 488-510, September.
  28. Yang, Xiaokai & Heijdra, Ben J, 1993. "Monopolistic Competition and Optimum Product Diversity: Comment," American Economic Review, American Economic Association, vol. 83(1), pages 295-301, March.
  29. Krugman, Paul R, 1981. "Intraindustry Specialization and the Gains from Trade," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 959-973, October.
  30. Francois, Patrick & van Ypersele, Tanguy, 2002. "On the protection of cultural goods," Journal of International Economics, Elsevier, vol. 56(2), pages 359-369, March.
  31. Ethier, Wilfred, 1979. "Internationally decreasing costs and world trade," Journal of International Economics, Elsevier, vol. 9(1), pages 1-24, February.
  32. Flam, Harry & Helpman, Elhanan, 1987. "Industrial policy under monopolistic competition," Journal of International Economics, Elsevier, vol. 22(1-2), pages 79-102, February.
  33. Bohm Volker, 1994. "The Foundation of the Theory of Monopolistic Competition Revisited," Journal of Economic Theory, Elsevier, vol. 63(2), pages 208-218, August.
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