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Multidivisional firms, internal competition, and comparative advantage: Baye et al. Meet Neary

Hamid Beladi and Avik Chakrabarti

Journal of International Economics, 2019, vol. 116, issue C, 50-57

Abstract: We present a tractable general equilibrium model to capture the effects of divisionalization on trade in oligopolistic industries. Divisionalization reduces the incentives for diversification in production. The extensive margins of trade expand as a result of divisionalization, facilitating specialization toward the direction of comparative advantage, with exports rising in the case of domestic divisionalization and imports rising in the case of foreign divisionalization. This effect of internal competition on specialization is magnified when competition between divisions is staggered. The factor market effects of divisionalization, domestic and/or foreign, strengthen the expansionary effects on the extensive margins of trade.

Keywords: General equilibrium; Oligopoly; International trade; Comparative advantage; Divisionalization; Staggered competition (search for similar items in EconPapers)
JEL-codes: F10 F12 L13 (search for similar items in EconPapers)
Date: 2019
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