Grounded by Gravity: A Well-Behaved Trade Model with Industry-Level Economies of Scale

Kucheryavyy, Konstantin; Lyn, Gary; Rodríguez-Clare, Andrés

Abstract

We propose a model to study the role of industry-level external economies of scale in open economies. If the elasticity governing the strength of external economies is below the inverse of the trade elasticity in each industry, then specialization under frictionless trade is consistent with comparative advantage, the model is tractable even with trade frictions, and all countries gain from trade. External economies lower gains from trade except if the country specializes in industries with high scale economies, and they amplify the gains from further trade liberalization except if it leads to specialization in industries with low scale economies.

Citation

Kucheryavyy, K., Lyn, G., & Rodríguez-Clare, A. (2023). Grounded by Gravity: A Well-Behaved Trade Model with Industry-Level Economies of Scale. American Economic Journal: Macroeconomics, 15(2), 372-412. https://doi.org/10.1257/mac.20190156

• Journal Article Type: Article
• Acceptance Date: Sep 21, 2022
• Publication Date: 2023-04
• Deposit Date: Sep 12, 2024
• Journal: American Economic Journal: Macroeconomics
• Print ISSN: 1945-7707
• Electronic ISSN: 1945-7715
• Publisher: American Economic Association
• Peer Reviewed: Peer Reviewed
• Volume: 15
• Issue: 2
• Pages: 372-412
• DOI: https://doi.org/10.1257/mac.20190156
• Public URL: https://nottingham-repository.worktribe.com/output/39460431
• Publisher URL: https://www.aeaweb.org/articles?id=10.1257/mac.20190156