National Differentiation and Industry-Wide Scale Effects
Ahmad Lashkaripour () and
Volodymyr Lugovskyy ()
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Ahmad Lashkaripour: Indiana University
No 2017-004 Classification-, Caepr Working Papers from Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington
In a large class of trade models, trading patterns and the corresponding welfare gains depend on the scale elasticity—a deep parameter that governs industry-wide returns to scale. Noting that the scale elasticity depends on the extent to which technologies or products are nationally differentiated, we develop an empirical strategy to structurally estimate the scale elasticity across various industries. A trade model that features our estimated scale elasticity captures the negative relationship between population size and real income, which eludes standard trade models. Furthermore, we find that scale elasticities display considerable inter-industry variation. Accounting for these previously overlooked variations greatly modifies the estimated gains from trade.
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Persistent link: https://EconPapers.repec.org/RePEc:inu:caeprp:2017004
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