Intra-industry trade under perfect monopolistic competition

This paper applies the analysis of perfect monopolistic competition, developed earlier by the author, to the problem of intra-industry trade. It is shown that a high volume of intra-industry trade can be expected even between economies which are identical in all respects and thus between which no trade would be predicted on the basis of comparative advantage. It is shown that similar economies may generate more mutual trade than dissimilar ones, and that tariffs may sometimes increase intra-industry trade.