TY - JOUR
T1 - External economies and international trade redux
AU - Grossman, Gene M.
AU - Rossi-Hansberg, Esteban
N1 - Funding Information:
∗We thank Robert Barro, Arnaud Costinot, Angus Deaton, Elhanan Helpman, Giovanni Maggi, Marc Melitz, Peter Neary, and four anonymous referees for helpful comments and discussions and the National Science Foundation (under Grant SES 0451712) and the Sloan Foundation for research support. Any opinions, findings, and conclusions or recommendations expressed in this paper are those of the authors and do not necessarily reflect the views of the National Science Foundation or any other organization. 1. For a recount of the debate and its protoganists, see Chipman (1965).
PY - 2010/5
Y1 - 2010/5
N2 - 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. With Bertrand competition, each firm can internalize the externalities from production by setting a price below those set by others. This out-of-equilibrium threat eliminates many of the "pathologies" of the standard treatment. 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 ensured.
AB - 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. With Bertrand competition, each firm can internalize the externalities from production by setting a price below those set by others. This out-of-equilibrium threat eliminates many of the "pathologies" of the standard treatment. 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 ensured.
UR - http://www.scopus.com/inward/record.url?scp=74549212344&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=74549212344&partnerID=8YFLogxK
U2 - 10.1162/qjec.2010.125.2.829
DO - 10.1162/qjec.2010.125.2.829
M3 - Article
AN - SCOPUS:74549212344
SN - 0033-5533
VL - 125
SP - 829
EP - 858
JO - Quarterly Journal of Economics
JF - Quarterly Journal of Economics
IS - 2
ER -