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External Economies and International Trade Redux

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  • Gene M. Grossman
  • Esteban Rossi-Hansberg

Abstract

We study a world with national external economies of scale at the industry level. In contrast to the standard treatment with perfect competition and two industries, we assume Bertrand competition in a continuum of industries. In this setting, many of the "pathologies" of the standard treatment disappear. There typically exists a unique equilibrium with trade guided by "natural" comparative advantage. And, when a country has CES preferences and any finite elasticity of substitution between goods, gains from trade are assured.

Suggested Citation

  • Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "External Economies and International Trade Redux," NBER Working Papers 14425, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:14425
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    References listed on IDEAS

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    JEL classification:

    • F1 - International Economics - - Trade
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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