LOVE OF VARIETY AND SCALE IMPLICATIONS: AN EMPIRICAL EVALUATION

Yongsheng Zhang () and Xueyan Zhao
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Yongsheng Zhang: Development Research Centre of the State Council, China

Division of Labor & Transaction Costs (DLTC), 2006, vol. 01, issue 02, 185-201

Abstract: Following the empirical work of Jones (1995a,b) that test the scale effects predicted by the AK models and the R&D based models, this paper tests the scale effects of a major new trade model, the Krugman (1979) version of the Dixit-Stiglitz (1977) model, using the Yang-Heijdra (1993) formula for own price elasticity of demand. Time series data from six economies are used to test the relationships between the average size of firms, population and per capita income. The results show that the scale effects predicted by the revised Krugman model are incompatible with empirical evidence.

Keywords: Scale effect; firm size; the Krugman model; the Dixit-Stiglitz model (search for similar items in EconPapers)
JEL-codes: C62 D E1 F F11 F12 F16 J2 J3 L O (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1142/S0219871106000123

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