Monopolistic Competition, Trade, and Endogenous Spatial Fluctuations

Gianmarco Ottaviano

No 1327, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper investigates the possibility of endogenous fluctuations in the international distribution of economic activities in the presence of increasing returns, monopolistic competition, trade and convex adjustment costs without allowing for any local productive externalities. Using a two-country dynamic general equilibrium model, it derives necessary and sufficient conditions for the existence of self-reinforcing relocation processes. It shows that the occurrence of multiple equilibria and endogenous fluctuations is associated with a high degree of increasing returns to scale as well as low trade and adjustment costs. Under such circumstances relocation processes are driven by self-fulfilling expectations

Keywords: Increasing Returns; International Trade; Monopolistic Competition; Spatial Fluctuations (search for similar items in EconPapers)
JEL-codes: E32 F12 F22 R12 (search for similar items in EconPapers)
Date: 1996-02
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Citations: View citations in EconPapers (21)

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Related works:
Journal Article: Monopolistic competition, trade, and endogenous spatial fluctuations (2001)
Working Paper: Monopolistic Competition, Trade and Endogenous Spatial Fluctuations (1996)
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