EconPapers    
Economics at your fingertips  
 

Trade, Growth and Increasing Returns to Infrastructure: The Role of the Sophisticated Monopolist

Ashok S. Guha and Brishti Guha ()
Additional contact information
Ashok S. Guha: SMU

Development Economics Working Papers from East Asian Bureau of Economic Research

Abstract: We consider a model of international trade with increasing returns in a non-traded input into industry, infrastructure, and show that the nature of equilibrium depends crucially on whether the infrastructure provider acts in a nave manner akin to a Level 1 agent in a cognitive hierarchy (C-H) model or in a more sophisticated manner. Infrastructure requires a fixed investment and is produced under decreasing marginal costs, and we model two possible market forms, monopoly and Cournot oligopoly with free entry both capable of generating pecuniary externalities in the manufacturing sector . Unlike most other work exploring the theme of increasing returns, we derive a unique closed economy equilibrium. In a small open economy, we show that with nave infrastructure provider(s), multiple equilibria obtain. In this event whether or not a small open economy becomes an industrial exporter depends crucially on the presence of unexhausted economies of scale, and it is possible to have equilibria where manufactures are exported in spite of the world price of manufactures being lower than the autarky price. With a more sophisticated infrastructure provider, however, even an open economy has a unique equilibrium, which for a wide range of parameter values also involves a greater degree of industrialization than any of the nave equilibria. For some parameter values, however, neither infrastructure nor manufacturing can develop and the economy remains totally agrarian.

Keywords: Increasing returns to scale; cognitive hierarchy; multiple equilibria; uniqueness; Cournot oligopoly (search for similar items in EconPapers)
Date: 2005-01
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.eaber.org/node/22425 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.eaber.org/node/22425 [301 Moved Permanently]--> https://www.eaber.org/node/22425 [301 Moved Permanently]--> https://eaber.org/node/22425)

Related works:
Journal Article: Trade, Growth, and Increasing Returns to Infrastructure: The Role of the Sophisticated Monopolist* (2009) Downloads
Working Paper: Trade, Growth and Increasing Returns to Infrastructure: The Role of the Sophisticated Monopolist (2008) Downloads
Working Paper: Trade, Growth and Increasing Returns to Infrastructure: The Role of the Sophisticated Monopolist (2008) Downloads
Working Paper: Trade, Growth and Increasing Returns to Infrastructure: The Role of the Sophisticated Monopolist (2005) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eab:develo:22425

Access Statistics for this paper

More papers in Development Economics Working Papers from East Asian Bureau of Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Shiro Armstrong ().

 
Page updated 2022-01-25
Handle: RePEc:eab:develo:22425