International Trade and Technological Competition in Markets with Dynamic Increasing Returns

43 Pages Posted: 1 Oct 2021

See all articles by Luca Fontanelli

Luca Fontanelli

Université de Nice Sophia Antipolis - Groupe de Recherche en Droit, Economie et Gestion (GREDEG); Scuola Superiore Sant'Anna di Pisa - Institute of Economics

Mattia Guerini

University of Brescia - Department of Economics and Management; GREDEG CNRS; Scuola Superiore Sant'Anna di Pisa

Mauro Napoletano

Université de Nice Sophia Antipolis - Groupe de Recherche en Droit, Economie et Gestion (GREDEG); Observatoire Français des Conjonctures Economiques (OFCE); SKEMA Business School; Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM)

Date Written: August 31, 2021

Abstract

We build a simple dynamic model to study the effects of technological learning, market selection and international competition in the determination of export flows and market shares. The model features two countries populated by firms with heterogeneous productivity levels and sales. Market selection in each country is driven by a finite pairwise Pólya urn process. We show that market selection leads either to a national or to an international monopoly in presence of a static distribution of firm productivity levels. We then incorporate firm learning and entry-exit in the model and we show that the market structure does not converge to a monopoly. In addition, we show that the extended model is able to jointly reproduce a wide ensemble of stylized facts concerning intra-industry trade, industry and firm dynamics.

Keywords: International trade, industrial dynamics, firm dynamics, market selection, Pólya urn

JEL Classification: C15, F1, L1

Suggested Citation

Fontanelli, Luca and Guerini, Mattia and Napoletano, Mauro, International Trade and Technological Competition in Markets with Dynamic Increasing Returns (August 31, 2021). Available at SSRN: https://ssrn.com/abstract=3914568 or http://dx.doi.org/10.2139/ssrn.3914568

Luca Fontanelli (Contact Author)

Université de Nice Sophia Antipolis - Groupe de Recherche en Droit, Economie et Gestion (GREDEG) ( email )

250, rue Albert Einstein
Valbonne, 06560
France

Scuola Superiore Sant'Anna di Pisa - Institute of Economics ( email )

Pisa
Italy

Mattia Guerini

University of Brescia - Department of Economics and Management ( email )

Via S. Faustino 74/b
Brescia
Italy

GREDEG CNRS ( email )

Sophia-Antipolis
France

Scuola Superiore Sant'Anna di Pisa ( email )

Pisa, 56127
Italy

Mauro Napoletano

Université de Nice Sophia Antipolis - Groupe de Recherche en Droit, Economie et Gestion (GREDEG) ( email )

250, rue Albert Einstein
Valbonne, 06560
France

Observatoire Français des Conjonctures Economiques (OFCE) ( email )

60, rue Dostoïevski
Sophia-Antipolis Cedex, 06902
France

HOME PAGE: http://www.ofce.sciences-po.fr

SKEMA Business School ( email )

60 rue Dostoïevski
Sophia Antipolis, 06902
France

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM) ( email )

Piazza Martiri della Liberta, 33
Pisa, I-56127
Italy

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