On the Impact of Trade on Industrial Structures: The Role of Entry Cost Heterogeneity

51 Pages Posted: 1 Nov 2007 Last revised: 28 May 2009

See all articles by Daisuke Oyama

Daisuke Oyama

University of Tokyo - Faculty of Economics

Yasuhiro Sato

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE); Nagoya University

Takatoshi Tabuchi

University of Tokyo - Faculty of Economics

Jacques-François Thisse

Catholic University of Louvain (UCL); Centre for Economic Policy Research (CEPR)

Date Written: May 22, 2009

Abstract

This paper investigates the impacts of progressive trade openness, technological externalities, and heterogeneity of individuals on the formation of entrepreneurship in a two-country occupation choice model. We show that trade opening gives rise to a non-monotonic process of international specialization, in which the share of entrepreneurial firms in the large (small) country first increases (decreases) and then decreases (increases), with the global economy exhibiting first de industrialization and then re-industrialization. When countries have the same size, we also show that strong technological externalities make the symmetric equilibrium unstable, generating equilibrium multiplicity, while sufficient heterogeneity of individuals leads to the stability and uniqueness of the symmetric equilibrium.

Keywords: entrepreneurship, trade liberalization, externality, heterogeneity, stability

JEL Classification: F12, F16, J24, O14, R12

Suggested Citation

Oyama, Daisuke and Sato, Yasuhiro and Tabuchi, Takatoshi and Thisse, Jacques-François, On the Impact of Trade on Industrial Structures: The Role of Entry Cost Heterogeneity (May 22, 2009). Available at SSRN: https://ssrn.com/abstract=1026523 or http://dx.doi.org/10.2139/ssrn.1026523

Daisuke Oyama (Contact Author)

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

Yasuhiro Sato

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

Nagoya University ( email )

Furo-cho, Chikusa-ku
Nagoya-City, 4648601
Japan

Takatoshi Tabuchi

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan
+81 3 5841 5603 (Phone)
+81 3 5841 5521 (Fax)

Jacques-François Thisse

Catholic University of Louvain (UCL) ( email )

Place des Doyens 1
Louvain-la-Neuve, 1348
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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