Painful Birth of Trade Under Classical Monopolistic Competition

35 Pages Posted: 8 Apr 2016

See all articles by Igor Bykadorov

Igor Bykadorov

Sobolev Institute of Mathematics; Novosibirsk State University; Novosibirsk State University of Economics and Management

Andrea Ellero

Ca Foscari University of Venice - Department of Management

Stefania Funari

Ca Foscari University of Venice - Department of Management

Sergey Kokovin

National Research University Higher School of Economics

Pavel Molchanov

National Research University Higher School of Economics

Date Written: April 6, 2016

Abstract

In the standard Krugman (1979) non-CES trade model, several asymmetric countries typically lose from increasing trade costs. However, all countries transiently benefit from such increase at the moment of closing trade, under almost-prohibitive trade costs (i.e., near autarky, which is possible only under non-CES preferences). In other words, during trade liberalization the first step from autarky to trade is necessarily harmful. Our explanation rests on market distortion and business destruction effects.

Keywords: Trade gains, monopolistic competition, variable elasticity of substitution, free trade, autarky

JEL Classification: F12, L13, D43

Suggested Citation

Bykadorov, Igor and Ellero, Andrea and Funari, Stefania and Kokovin, Sergey and Molchanov, Pavel, Painful Birth of Trade Under Classical Monopolistic Competition (April 6, 2016). Higher School of Economics Research Paper No. WP BRP 132/EC/2016. Available at SSRN: https://ssrn.com/abstract=2759872 or http://dx.doi.org/10.2139/ssrn.2759872

Igor Bykadorov

Sobolev Institute of Mathematics

4 Acad. Koptyug avenue
Novosibirsk, 630090
Russia

Novosibirsk State University ( email )

2 Pirogova Street
Novosibirsk, 630090
Russia

Novosibirsk State University of Economics and Management ( email )

56, Kamenskaya Street
Novosibirsk, 630099
Russia

Andrea Ellero

Ca Foscari University of Venice - Department of Management ( email )

San Giobbe, Cannaregio 873
Venice, 30121
Italy

Stefania Funari

Ca Foscari University of Venice - Department of Management ( email )

San Giobbe, Cannaregio 873
Venice, 30121
Italy

Sergey Kokovin (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Pavel Molchanov

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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