Market Integration,Choice of Technology,and Welfare |
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| Authors: | Jørgen Drud Hansen Jørgen Ulff‐Møller Nielsen |
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| Institution: | 1. Department of Economics, Aarhus School of Business, University of Aarhus, Frichshuset, Denmark;2. We are grateful for valuable comments from Philipp Schr?der;3. Aarhus School of Business, University of Aarhus;4. Frank St?hler, University of Otago;5. Daniel M. Bernhofen, University of Nottingham, and participants at European Trade Study Group, Ninth Annual Conference, Athens, 2007, and at seminars at the University of Otago;6. Leverhulme Centre for Research in Globalisation and Economic Policy, University of Nottingham, and Aarhus School of Business, University of Aarhus. |
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| Abstract: | This paper develops an international trade model where firms in a duopoly may diversify their technologies for strategic reasons. The firms face the same set of technologies given by a tradeoff between marginal costs and fixed costs, but depending on trade costs firms may choose different technologies. Market integration may induce a technological restructuring where firms either diversify their technologies or switch to a homogeneous technology. In general, market integration improves welfare. However, a small decrease of trade costs which induces a switch from heterogeneous technologies to a homogeneous technology may locally reduce global welfare. The model also shows that productivity differences lead to intra‐industry firm heterogeneity in size and exports similar to the “new–new” trade models with monopolistic competition. |
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