International Trade under Monopolistic Competition beyond the CES

Badis Tabarki
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Badis Tabarki: UP1 - Université Paris 1 Panthéon-Sorbonne, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: This paper considers a general yet tractable demand system encompassing directly- and indirectly-separable preferences, with homothetic CES as a commonn ground. An added flexibility of this demand system is that it allows for two alternative curvatures of demand. Beyond the CES, demand may be either "sub-convex": less convex than the CES, or "super-convex": more convex than the CES. Embedded in a general equilibrium trade model featuring standard assumptions on the supply side, this flexible demand system yields new comparative statics results and a wide range of predictions for the gains from trade, while illustrating existing ones in a simple and compact way. The main finding of this paper is that while demand curvature governs comparative statics results and plays a crucial role in determining the structure and the magnitude of welfare gains from trade, the type of preferences has only a second-order importance from a welfare standpoint.

Keywords: demand curvature; gains from trade; heterogeneous firms; non-CES preferences (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-int
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Published in 2020

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