MONOPOLISTIC COMPETITION WITH EFFICIENCY GAPS AND A HECKSCHER‐OHLIN TRADE PATTERN*

Toru Kikuchi and Koji Shimomura

The Japanese Economic Review, 2006, vol. 57, issue 3, 426-437

Abstract: We develop a two‐factor, three‐sector model of international trade in which the monopolistically competitive firms are characterized by different fixed production costs. We show that, depending on the pattern of the international distribution of factor endowments, the trade pattern is determined not only by relative factor endowments as suggested by Heckscher and Ohlin, but also by absolute factor endowments via a mechanism of competitive selection in the monopolistically competitive sector.

Date: 2006
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