Intra-industry Trade and the Variety of Home Products

Chien-Fu Chou and Oz Shy

Canadian Journal of Economics, 1991, vol. 24, issue 2, 405-16

Abstract: The authors provide a rigorous general equilibrium analysis of the welfare effects of international trade in the presence of differentiated home nontraded products as well as tradable products. They extend the standard monopolisitic competition framework to incorporate differentiated nontraded products and demonstrate that, in general, the gains-from-trade proposition applies also to this framework. However, the authors also show that trade may reduce the variety of home products and, thus, abstracting from all sources of gains from trade other than variety effects, they show that only in a very extreme case trade may make all countries worse off.

Date: 1991
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