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International Trade under Monopolistic Competition beyond the CES

Abstract : This paper considers a general yet tractable demand system encompassing directly- and indirectly-separable preferences, with homothetic CES as a commonn ground. An added flexibility of this demand system is that it allows for two alternative curvatures of demand. Beyond the CES, demand may be either "sub-convex": less convex than the CES, or "super-convex": more convex than the CES. Embedded in a general equilibrium trade model featuring standard assumptions on the supply side, this flexible demand system yields new comparative statics results and a wide range of predictions for the gains from trade, while illustrating existing ones in a simple and compact way. The main finding of this paper is that while demand curvature governs comparative statics results and plays a crucial role in determining the structure and the magnitude of welfare gains from trade, the type of preferences has only a second-order importance from a welfare standpoint.
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https://halshs.archives-ouvertes.fr/halshs-02966937
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Submitted on : Wednesday, October 14, 2020 - 3:35:45 PM
Last modification on : Tuesday, January 19, 2021 - 11:08:58 AM

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Badis Tabarki. International Trade under Monopolistic Competition beyond the CES. 2020. ⟨halshs-02966937⟩

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