External Economies and International Trade Redux

Gene M. Grossman, Esteban Rossi-Hansberg

NBER Working Paper No. 14425
Issued in October 2008
NBER Program(s):   EFG   ITI

We study a world with national external economies of scale at the industry level. In contrast to the standard treatment with perfect competition and two industries, we assume Bertrand competition in a continuum of industries. In this setting, many of the "pathologies" of the standard treatment disappear. There typically exists a unique equilibrium with trade guided by "natural" comparative advantage. And, when a country has CES preferences and any finite elasticity of substitution between goods, gains from trade are assured.

(194 K)

Published: Gene M. Grossman & Esteban Rossi-Hansberg, 2010. "External Economies and International Trade Redux," The Quarterly Journal of Economics, MIT Press, vol. 125(2), pages 829-858, May.

This paper is available as PDF (194 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX