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International trade, migration and investment with horizontal product differentiation and free entry and exit of firms

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  • Hernan Vallejo

Abstract

This paper builds a circular road model of the world with horizontal product differentiation and free entry and exit of firms, to show that freer international trade increases welfare -with ideal variety preferences- through the exploitation of economies of scale and better allocative efficiency, that all participating countries gain from trade, and that smaller countries have more to win from free trade than larger countries. Political resistance to trade liberalization, international migration and foreign direct investment are also analyzed with the model. Finally, the model provides a microfoundation for the use of demand curves with constant and negative slopes.

Suggested Citation

  • Hernan Vallejo, 2006. "International trade, migration and investment with horizontal product differentiation and free entry and exit of firms," Revista de Economía del Rosario, Universidad del Rosario, November.
    • Handle: RePEc:col:000151:004252
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    File URL: http://revistas.urosario.edu.co/index.php/economia/article/view/1109/1003
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    References listed on IDEAS

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    1. B. Curtis Eaton & Richard G. Lipsey, 1975. "The Principle of Minimum Differentiation Reconsidered: Some New Developments in the Theory of Spatial Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 42(1), pages 27-49.
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    3. Boccard, N. & Wauthy, Xavier, 1997. "Export Restraints and Horizontal Product Differentiation," LIDAM Discussion Papers IRES 1997024, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Sep 1997.
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    5. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    6. Nicolas Schmitt, 1990. "Two-Country Trade Liberalization in an Address Model of Product Differentiation," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 654-675, August.
    7. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
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    More about this item

    Keywords

    monopolistic competition; horizontal product differentiation; internationaltrade; international migration; foreign direct investment;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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