International trade, migration and investment with horizontal product differentiation and free entry and exit of firms

This paper builds on a circular road model of the world with horizontal product differentiation and free entry and exit of firms, to derive results that can be applied in industrial organization, international trade and political economy. The model shows that freer international trade increases welfare -with ideal variety preferencesthrough the exploitation of economies of scale and better allocative efficiency; that all participating countries gain from trade, and that smaller countries have more to win from free trade than larger countries. The model also explains that there may be adjustment costs when liberalizing trade and thus, political resistance to trade liberalization. International migration can also be analyzed with the model, showing the possibility of suboptimal migration flows and political barriers to the exit of national citizens. The model suggests that foreign direct investment will be welfare improving for the source country in the short run, and for the receiving country in the long run. Finally, the model provides a microfoundation for the use of demand curves with constant and negative slopes.

• Autores: Vallejo González, Hernán Eduardo
• Tipo de recurso: Work document
• Fecha de publicación: 2005
• Institución: Universidad de los Andes
• Repositorio: Séneca: repositorio Uniandes
• Idioma: eng
• OAI Identifier: oai:repositorio.uniandes.edu.co:1992/7971
• Acceso en línea: http://hdl.handle.net/1992/7971
• Palabra clave: Monopolistic competition; Horizontal product differentiation; International trade; International migration and foreign direct investment; Libre comercio - Modelos econométricos; Comercio exterior - Modelos econométricos; Competencia económica internacional - Modelos econométricos; Inversiones extranjeras - Modelos econométricos; Emigración e inmigración - Investigaciones; Organización industrial - Investigaciones; Economía política - Investigaciones; F12, F13
• Rights: openAccess
• License: http://creativecommons.org/licenses/by-nc-nd/4.0/