A Simple Model of Trade with Heterogeneous Firms and Trade Policy

Marcelo Fukushima and Toru Kikuchi

MPRA Paper from University Library of Munich, Germany

Abstract: This paper builds a Ricardian-Chamberlinian two-country model with heterogeneous firms in a monopolistically competitive sector in which every new entrant faces increasing fixed costs of production. There are efficiency gaps between countries in marginal and fixed costs and a country unilaterally imposes an import tariff. It is shown that an increase in tariff increases the number of firms of the tariff imposing country while decreases the number of firms of the tariff-imposed country, possibly reverting the position of net exporter of varieties. A tariff is detrimental to the tariff-imposed country. A small tariff may be beneficial to the tariff-imposing country.

JEL-codes: F12 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:9573

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