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Mobile Capital, Variable Elasticity of Substitution, and Trade Liberalization

Author

Listed:
  • Ching-mu Chen
  • Dao-Zhi Zeng

Abstract

This article investigates the impact of trade liberalization on trade patterns, firm markups, and firm locations in a two-factor monopolistic competition model that features variable elasticity of substitution by a general additively separable utility. We find that, depending on the relative export hurdles, either direction of one-way trade may occur when trade opens up. Its direction determines the responses of firm-level markups and various home market effects to falling trade costs. Our results show that some important findings in the literature are robust only with particular classes of preferences. We provide a possible rationale for some well-known conflicting empirical facts.

Suggested Citation

  • Ching-mu Chen & Dao-Zhi Zeng, 2018. "Mobile Capital, Variable Elasticity of Substitution, and Trade Liberalization," Journal of Economic Geography, Oxford University Press, vol. 18(2), pages 461-494.
    • Handle: RePEc:oup:jecgeo:v:18:y:2018:i:2:p:461-494.
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    File URL: http://hdl.handle.net/10.1093/jeg/lbx022
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    Citations

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    Cited by:

    1. Lin, Kefu & Zeng, Dao-Zhi, 2023. "International trade with binary preferences and heterogeneous productivity," Economic Modelling, Elsevier, vol. 122(C).
    2. Dao‐Zhi Zeng & Shin‐Kun Peng, 2021. "Symmetric tax competition and welfare with footloose capital," Journal of Regional Science, Wiley Blackwell, vol. 61(2), pages 472-491, March.
    3. Hajime Takatsuka & Dao‐Zhi Zeng, 2018. "Elastic labor supply, variable markups, and spatial inequalities," Review of International Economics, Wiley Blackwell, vol. 26(5), pages 1084-1100, November.
    4. Yiming Zhou, 2019. "Home market effect, land rent, and welfare," Asia-Pacific Journal of Regional Science, Springer, vol. 3(2), pages 561-580, June.

    More about this item

    Keywords

    pro-competitive effect; choke price; one-way trade; firm-level markups; home market effect;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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