Competitive trade models and real world features

Competitive small-dimension international trade models perform well in comparing free (or restrictive) trade with autarky, especially in emphasizing that consumption patterns can differ from production patterns and that production becomes highly concentrated while consumption patterns are expanded. Variations on these small-dimensional models can usefully show how with trade production patterns may nonetheless be more diverse and a country’s labor force become more heterogeneous in its skills. The paper illustrates how the Middle Products framework can be reinterpreted to support variety in production and in labor skills.