Essays on Firm Heterogeneity and Quality in International Trade

Traditional trade theory features comparative advantage and factor abundance to ac- count for inter-industry trade in models of perfect competition. New trade theory emerged at the end of the 1970s to provide an explanation for the ever larger amount of intra-industry trade using models of imperfect competition. Whereas the gains from trade in traditional models are due to specialization, the new trade theory adds four dif- ferent gains from trade. First, the monopolistic competition model of Krugman (1980) displays a variety e¤ect with trade enabling the consumption of more di¤erent varieties. Second, the model of Krugman (1979) features a scale e¤ect besides a variety e¤ect: trade implies a larger market and the possibility to produce at a larger scale leading to e¢ ciency gains. Third, the model by Ethier (1982) on intermediate goods trade contains a labor division e¤ect: trade enables the use of more intermediate varieties in production. Fourth, the oligopoly model of Brander and Krugman (1983) illuminates the pro-competitive e¤ects from trade. A larger market raises the number of competitors and drives down consumer prices.

• View at Worldcat

Free Full Text ( Final Version , 756kb )