TY - JOUR

T1 - Increasing returns, monopolistic competition, and international trade: Revisiting gains from trade

AU - Kokovin, Sergey

AU - Molchanov, Pavel

AU - Bykadorov, Igor

N1 - Funding Information: We are grateful to the editor, Andrés Rodríguez-Clare, and two anonymous referees for their incredibly useful comments and suggestions. We are indebted to Evgeny Zhelobodko (1973–2013), Andrea Ellero, and Stefania Funari for participating in the early stages of the research (see working paper Bykadorov et al., 2016 ); to Jacques-Franois Thisse and Kristian Behrens for their guidance; to Paolo Bertoletti, Svetlana Demidova, Richard E. Ericson, Federico Etro, Toshitaka Gokan, Konstantin Kucheryavyy, Sergey Kichko, Yasusada Murata, Mathieu Parenti, Frderic Robert-Nicoud, Alexander Shepotylo, Alexander Tarasov, Federico Trionfetti, Philip Ushchev, Natalya Volchkova, and Dao-Zhi Zeng for valuable comments. Kokovin and Molchanov gratefully acknowledge support from the Basic Research Program of the National Research University Higher School of Economics (HSE University) in developing Sections 1–3 . Bykadorov's part of the study ( Sections 4 and 5 ) was carried out within the framework of the state contract of the Sobolev Institute of Mathematics (project no. FWNF-2022-0019) and within the framework of the Laboratory of Empirical Industrial Organization, the Economic Department of Novosibirsk State University. All errors are our own. Publisher Copyright: © 2022

PY - 2022/7

Y1 - 2022/7

N2 - We study the canonical Krugman (1979) trade model with non-CES preferences that yield autarky at finite trade costs. We prove a non-monotone impact of gradual trade liberalization. At first, near autarky, emerging trade reduces world welfare, while at free trade it becomes large enough to be beneficial (Krugman's result). This non-monotonicity persists under heterogenous firms. The harmful small-scale trade is explained by variable markups and underpriced imports, which become socially excessive. Unlike protectionists, we argue that “liberalization should go far”. On the other hand, we show that anti-dumping measures can be viewed as a remedy for the aforementioned imports distortion.

AB - We study the canonical Krugman (1979) trade model with non-CES preferences that yield autarky at finite trade costs. We prove a non-monotone impact of gradual trade liberalization. At first, near autarky, emerging trade reduces world welfare, while at free trade it becomes large enough to be beneficial (Krugman's result). This non-monotonicity persists under heterogenous firms. The harmful small-scale trade is explained by variable markups and underpriced imports, which become socially excessive. Unlike protectionists, we argue that “liberalization should go far”. On the other hand, we show that anti-dumping measures can be viewed as a remedy for the aforementioned imports distortion.

KW - Autarky

KW - Harmful trade

KW - Monopolistic competition

KW - Trade gains

KW - Variable markups

UR - http://www.scopus.com/inward/record.url?scp=85125490632&partnerID=8YFLogxK

UR - https://www.mendeley.com/catalogue/824b4f14-4b04-3834-8a72-f9c4b0204050/

U2 - 10.1016/j.jinteco.2022.103595

DO - 10.1016/j.jinteco.2022.103595

M3 - Article

AN - SCOPUS:85125490632

VL - 137

JO - Journal of International Economics

JF - Journal of International Economics

SN - 0022-1996

M1 - 103595

ER -