Dundee Discussion Papers in Economics 090: Efficiency gaps, love of variety and international trade

Catia Montagna

Dundee Discussion Papers in Economics 090: Efficiency gaps, love of variety and international trade

Catia Montagna

Research output: Working paper/Preprint › Discussion paper

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Abstract

This paper develops a general equilibrium model of trade with technical heterogeneity amongst monopolistically competitive firms and countries. With free-entry, the existence of technical asymmetries between firms leads to the endogenous determination of the equilibrium average efficiency of the industry. It is shown that trade reduces (increases) the minimum efficiency required to survive in the more (less) efficient country. This has important welfare implications: (1) contrary to the constant elasticity of substitution homogeneous firms model, through its effects on the efficiency composition of the industry, trade affects welfare even when there is no love of variety, and (2) there are circumstances in which trade liberalisation leads to a loss of consumer welfare.

Original language	English
Publisher	University of Dundee
Publication status	Published - 1998

Publication series

Name	Dundee Discussion Papers in Economics
Publisher	University of Dundee
No.	90
ISSN (Print)	1473-236X

Keywords

Monopolistic competition
International trade
Efficiency gaps

Access to Document

DDPE_090.pdf

Efficiency gaps, love of variety and international trade
Montagna, C., Feb 2001, In: Economica. 68, 269, p. 27-44
Research output: Contribution to journal › Article › peer-review
46 Link opens in a new tab Citations (Scopus)

Cite this

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title = "Dundee Discussion Papers in Economics 090: Efficiency gaps, love of variety and international trade",

abstract = "This paper develops a general equilibrium model of trade with technical heterogeneity amongst monopolistically competitive firms and countries. With free-entry, the existence of technical asymmetries between firms leads to the endogenous determination of the equilibrium average efficiency of the industry. It is shown that trade reduces (increases) the minimum efficiency required to survive in the more (less) efficient country. This has important welfare implications: (1) contrary to the constant elasticity of substitution homogeneous firms model, through its effects on the efficiency composition of the industry, trade affects welfare even when there is no love of variety, and (2) there are circumstances in which trade liberalisation leads to a loss of consumer welfare.",

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N1 - This paper was also published by Wiley-Blackwell, in Economica, Vol. 68, no. 269, pp. 27-44 The definitive version is available at www3.interscience.wiley.com

PY - 1998

Y1 - 1998

N2 - This paper develops a general equilibrium model of trade with technical heterogeneity amongst monopolistically competitive firms and countries. With free-entry, the existence of technical asymmetries between firms leads to the endogenous determination of the equilibrium average efficiency of the industry. It is shown that trade reduces (increases) the minimum efficiency required to survive in the more (less) efficient country. This has important welfare implications: (1) contrary to the constant elasticity of substitution homogeneous firms model, through its effects on the efficiency composition of the industry, trade affects welfare even when there is no love of variety, and (2) there are circumstances in which trade liberalisation leads to a loss of consumer welfare.

AB - This paper develops a general equilibrium model of trade with technical heterogeneity amongst monopolistically competitive firms and countries. With free-entry, the existence of technical asymmetries between firms leads to the endogenous determination of the equilibrium average efficiency of the industry. It is shown that trade reduces (increases) the minimum efficiency required to survive in the more (less) efficient country. This has important welfare implications: (1) contrary to the constant elasticity of substitution homogeneous firms model, through its effects on the efficiency composition of the industry, trade affects welfare even when there is no love of variety, and (2) there are circumstances in which trade liberalisation leads to a loss of consumer welfare.

KW - Monopolistic competition

KW - International trade

KW - Efficiency gaps

M3 - Discussion paper

T3 - Dundee Discussion Papers in Economics

BT - Dundee Discussion Papers in Economics 090

PB - University of Dundee

ER -

Dundee Discussion Papers in Economics 090: Efficiency gaps, love of variety and international trade

Abstract

Publication series

Keywords

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Research output

Efficiency gaps, love of variety and international trade

Cite this