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The Heckscher-Ohlin Model with Monopolistic Competition and General Preferences

Author

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  • Federico Etro

    (Department of Economics, University Of Venice CÃ Foscari)

Abstract

I extend the neoclassical 2x2x2 trade model to general preferences over a variety of goods supplied under monopolistic competition in a sector while the other sector is perfectly competitive. Non-homothetic preferences deliver pricing to market, incomplete pass-through and market size effects. Under realistic conditions, the differentiated goods are sold at a higher price in the capital-abundant country.

Suggested Citation

  • Federico Etro, 2017. "The Heckscher-Ohlin Model with Monopolistic Competition and General Preferences," Working Papers 2017:10, Department of Economics, University of Venice "Ca' Foscari".
    • Handle: RePEc:ven:wpaper:2017:10
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    References listed on IDEAS

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    1. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, vol. 15(3-4), pages 313-321, November.
    2. Cavallari, Lilia & Etro, Federico, 2020. "Demand, markups and the business cycle," European Economic Review, Elsevier, vol. 127(C).
    3. Feenstra, Robert C., 2018. "Restoring the product variety and pro-competitive gains from trade with heterogeneous firms and bounded productivity," Journal of International Economics, Elsevier, vol. 110(C), pages 16-27.
    4. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2021. "Market Size, Trade, and Productivity," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 4, pages 87-108, World Scientific Publishing Co. Pte. Ltd..
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    8. Bertoletti, Paolo & Epifani, Paolo, 2014. "Monopolistic competition: CES redux?," Journal of International Economics, Elsevier, vol. 93(2), pages 227-238.
    9. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
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    11. Paolo Bertoletti & Federico Etro, 2016. "Preferences, entry, and market structure," RAND Journal of Economics, RAND Corporation, vol. 47(4), pages 792-821, November.
    12. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity (DOI:10.111/j.1467-937x.2007.00463.x)," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(3), pages 985-985.
    13. Paolo Bertoletti & Federico Etro & Ina Simonovska, 2018. "International Trade with Indirect Additivity," American Economic Journal: Microeconomics, American Economic Association, vol. 10(2), pages 1-57, May.
    14. Paolo Bertoletti & Federico Etro, 2017. "Monopolistic Competition when Income Matters," Economic Journal, Royal Economic Society, vol. 127(603), pages 1217-1243, August.
    15. Costas Arkolakis & Arnaud Costinot & Dave Donaldson & Andrés Rodríguez-Clare, 2019. "The Elusive Pro-Competitive Effects of Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(1), pages 46-80.
    16. Lahiri, Sajal & Ono, Yoshiyasu, 1995. "The Role of Free Entry in an Oligopolistic Heckscher-Ohlin Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 609-624, August.
    17. Etro, Federico, 2016. "The Ramsey model with monopolistic competition and general preferences," Economics Letters, Elsevier, vol. 145(C), pages 141-144.
    18. Paolo Bertoletti & Federico Etro, 2017. "Monopolistic Competition when Income Matters," Economic Journal, Royal Economic Society, vol. 127(603), pages 1217-1243, August.
    19. Federico Etro, 2015. "Endogenous Market Structures and International Trade: Theory and Evidence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 117(3), pages 918-956, July.
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    Cited by:

    1. Etro, Federico, 2019. "The Romer model with monopolistic competition and general technologies," Economics Letters, Elsevier, vol. 181(C), pages 1-6.
    2. Sugata Marjit & Biswajit Mandal, 2021. "Monopolistic Competition, Optimum Product Diversity, and International Trade - The Role of Factor Endowment and Factor Intensities," CESifo Working Paper Series 9256, CESifo.
    3. Lilia Cavallari & Federico Etro, 2017. "Demand, Markups and the Business Cycle. Bayesian Estimation and Quantitative Analysis in Closed and Open Economies," Working Papers 2017:09, Department of Economics, University of Venice "Ca' Foscari".

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    More about this item

    Keywords

    Monopolistic competition; Heckscher-Ohlin Model; non-homothetic preferences; international trade;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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