Market structure and foreign trade: increasing returns, imperfect competition, and the international economy

In past years, imperfect competition has been introduced in several dynamic models to show how markup variability, increasing returns (decreasing marginal cost), and monopoly profits affect the occurrence of endogenous fluctuations. In this paper, we focus on another possible feature of imperfectly competitive economies: consumers' taste for variety as a result of endogenous product diversity. Introducing monopolistic competition [Dixit and Stiglitz (1977), Benassy (1996)] in an overlapping generations model in which consumers have taste for variety, we show that local indeterminacy can occur under the three following conditions: a high substitution between capital and labor, increasing returns arbitrarily small, and a not too elastic labor supply. The key mechanism for this result is based on the fact that, because of taste for variety, the aggregate price decreases with the procyclical product diversity, which has a direct influence on the real wage and the real interest rate.

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Market Structure and Foreign Trade

Canadian Journal of Economics/Revue canadienne d économique ◽

10.2307/135294 ◽

1986 ◽

Vol 19 (2) ◽

pp. 368

Author(s):

James A. Brander ◽

Helpman ◽

Krugman

Keyword(s):

Foreign Trade ◽

Market Structure

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International trade and endogenous growth: the case of Czech economy

Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis ◽

10.11118/actaun201159020333 ◽

2011 ◽

Vol 59 (2) ◽

pp. 333-338 ◽

Cited By ~ 1

Author(s):

Marcel Ševela

Keyword(s):

Imperfect Competition ◽

Returns To Scale ◽

Spillover Effect ◽

Increasing Returns ◽

Second Step ◽

Full Data ◽

Increasing Returns To Scale ◽

Goods Market ◽

The Common ◽

Using Data

The paper is focuses on testing of the presence of increasing returns to scale in the Czech economy production function that is constructed upon Solow growth accounting formula. The growth relation is adapted for imperfect competition in the goods market. In the second step the spillover effect to total factor productivity is tested based on import openness of the economy and share of productive equipment imports to gross domestic product. Using data on Czech economy in years 1993–2009 for OLS estimates, the presence of increasing returns to scale was proved in all tested models, the obtained returns to scale parameter is about 2. Explained variability is relatively poor for the full data sample, limiting the data range to 1999–2009 the model is able explain almost 57 %. Tests for spillover effect modeled through import shares do not bring evidence about appropriate significance, the common test of OLS approach indicated very low contribution for import variables in both versions.

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