Internal increasing returns to scale, product differentiation, and pattern of trade. Ekonomika in politika mednarodne menjave Jože P. Damijan. Contents. further readings; introduction; assumptions; preference structure; basic model of production; effects of trade; empirics.
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Internal increasing returns to scale, product differentiation, and patternof trade
Ekonomika in politika mednarodne menjave
Jože P. Damijan
Intra-industry trade is more intense among countries with similar preferences
Intra-industry trade is more intense among countries with similar preferences (levels of income)
v' >0, v''<0
0 < < 1
Since all individuals are alike the above equation can be rearranged to form the demand curve facing the single firms producing that good.
Since β, θ and w are the same for all firms, prices are the same for all goods (p=pi)
Profits of the firm producing good i are
Since profits are zero the representative firm’s output (which is equal for all firms) equals:
Intra-industry is intense:
IITij= f (dif GDP pc, max GDP, min GDP)
Signs of reg. coefs. do correspond to theoretically expected, however become low and insignificant in more recent years
Redoing Helpman test
IITij= f (dif GDP pw, max GDP, min GDP, dummy vars.)
Panel analysis does not confirm the model
(problems with switching signs)