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Market Size, Differentiated Scale Economies and Interindustry Trade

  • Roehlano M. Briones

    (WorldFish Center)

A stylized pattern of interindustry trade between developing and developed regions identifies the former as specialists in light manufactures and latter in heavy manufactures. Conventional explanations for this pattern rely on the factor proportions model, which is empirically suspect. This paper proposes an alternative model that relies on the interaction between scale economies and domestic market size. Unlike standard increasing returns analysis, the model provides a rich yet tractable characterization of variations in scale economies across industries. The model, in applying a limit pricing framework to the open economy, offers a new approach to analyzing imperfect competition and interregional trade.

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Paper provided by EconWPA in its series International Trade with number 0412006.

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Length: 34 pages
Date of creation: 08 Dec 2004
Date of revision:
Handle: RePEc:wpa:wuwpit:0412006
Note: Type of Document - pdf; pages: 34. Explains a stylized pattern of industry specialization in international trade, by offering a new model of imperfect competition adapted from the Big Push model of Murphy, Shliefer, and Vishny (1989)
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  1. Anthony J. Venables, 1993. "Equilibrium Locations of Vertically Linked Industries," CEP Discussion Papers dp0137, Centre for Economic Performance, LSE.
  2. Fafchamps, Marcel & Helms, Brigit, 1996. "Local demand, investment multipliers, and industrialization: Theory and application to the Guatemalan highlands," Journal of Development Economics, Elsevier, vol. 49(1), pages 61-92, April.
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  8. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-46, December.
  9. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1988. "Industrialization and the Big Push," NBER Working Papers 2708, National Bureau of Economic Research, Inc.
  10. Deardorff, Alan V., 1984. "Testing trade theories and predicting trade flows," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 10, pages 467-517 Elsevier.
  11. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  12. Liedholm, Carl & Mead, Donald C., 1987. "Small Scale Industries in Developing Countries: Empirical Evidence and Policy Implications," Food Security International Development Papers 54062, Michigan State University, Department of Agricultural, Food, and Resource Economics.
  13. Fujita, Masahisa & Krugman, Paul & Mori, Tomoya, 1999. "On the evolution of hierarchical urban systems1," European Economic Review, Elsevier, vol. 43(2), pages 209-251, February.
  14. Bowen, Harry P & Leamer, Edward E & Sveikauskas, Leo, 1987. "Multicountry, Multifactor Tests of the Factor Abundance Theory," American Economic Review, American Economic Association, vol. 77(5), pages 791-809, December.
  15. Hanson, Gordon H., 1996. "Agglomeration, Dispersion, and the Pioneer Firm," Journal of Urban Economics, Elsevier, vol. 39(3), pages 255-281, May.
  16. Hymer, Stephen H & Resnick, Stephen, 1969. "A Model of an Agrarian Economy with Nonagricultural Activities," American Economic Review, American Economic Association, vol. 59(4), pages 493-506, Part I Se.
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