Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/31168 
Year of Publication: 
2004
Series/Report no.: 
Discussion Paper No. 1390
Publisher: 
Northwestern University, Kellogg School of Management, Center for Mathematical Studies in Economics and Management Science, Evanston, IL
Abstract: 
We propose a new approach to model costly international trade, which includes the standard approach, the iceberg” transport cost, as a special case. The key idea is to make the technologies of supplying the good depend on the destination of the good. To demonstrate our approach, we extend the Ricardian model with a continuum of goods, due to Dornbusch, Fischer and Samuelson (1977), by introducing multiple factors of production and by making each industry consist of the domestic division, which supplies the good at home, and the export division, which supplies the good abroad. If the two divisions differ only in the total factor productivity, our model becomes isomorphic to the DFS model with the iceberg transport cost. When the two divisions differ also in the factor intensity, globalization changes the relative factor prices in the same direction across the countries, in sharp contrast to the usual Stolper-Samuelson effect, which suggests that the relative factor prices move in different directions in different countries.
Document Type: 
Working Paper

Files in This Item:
File
Size
147.67 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.