Trade and Entrepreneurship with Heterogeneous Workers

47 Pages Posted: 6 Jun 2008

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: November 2007

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, externality, heterogeneity, stability, trade liberalization

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

Suggested Citation

Oyama, Daisuke and Sato, Yasuhiro and Tabuchi, Takatoshi and Thisse, Jacques-François, Trade and Entrepreneurship with Heterogeneous Workers (November 2007). CEPR Discussion Paper No. DP6567. Available at SSRN: https://ssrn.com/abstract=1140094

Daisuke Oyama

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 (Contact Author)

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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