De-industrialisation and entrepreneurship under monopolistic competition

Albert Schweinberger and Jens Suedekum

No 170, DICE Discussion Papers from Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)

Abstract: This paper offers a new mechanism to explain de-industrialisation in response to a price increase of the manufactured good. In our trade model, one sector (agriculture) is perfectly competitive while the other (manufacturing) is monopolistically competitive. Both industries use skilled and unskilled labour as inputs. Entry into manufacturing requires a fixed cost in terms of skilled labour only. A rise in the market price for the differentiated goods raises both marginal revenue and the price of skilled labour, which affects the marginal cost of production and the entry cost. When short-run profits increase so that new manufacturing firms enter, fewer skilled workers are available for production purposes. This, in turn, may then lead to a decline in total manufacturing output. Our theoretical mechanism is jointly consistent with recent empirical observations on pre-mature deindustrialization characterizing several Latin American and Asian countries, and productive diversification as observed in various developing economies.

Keywords: entrepreneurship; monopolistic competition; de-industrialisation (search for similar items in EconPapers)
JEL-codes: D43 F12 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-com
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/106524/1/816490392.pdf (application/pdf)

Related works:
Journal Article: De-industrialization and entrepreneurship under monopolistic competition (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:dicedp:170

Access Statistics for this paper

More papers in DICE Discussion Papers from Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().