International Trade under Monopolistic Competition beyond the CES

Badis Tabarki (1, 2, 3)

1 UP1 - Université Paris 1 Panthéon-Sorbonne
2 CES - Centre d'économie de la Sorbonne
3 PSE - Paris School of Economics

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.

Mots clés: demand curvature; gains from trade; heterogeneous firms; non-CES preferences

Domaines: Economies et finances

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