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Monopolistic Competition, International Trade and Firm Heterogeneity - a Life Cycle Perspective

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  • Wp 08-7

    Final published version, 419 KB, PDF document

  • Jørgen Drud Hansen
  • Virmantas Kvedaras, Vilnius University, Lithuania
  • Jørgen Ulff-Møller Nielsen, Denmark
This paper presents a dynamic international trade model based on monopolistic competition, where observed intra-industry differences at a given point in time reflect different stages of the firm's life cycle. New product varieties of still higher quality enter the market every period rendering old varieties obsolescent in a process of creative destruction. For given technology (variety) production costs decrease after an infant period due to learning. It is shown that several patterns of exports may arise depending primarily on the size of fixed trade costs. At a given point in time firms therefore differ due to different age, although all firms are symmetric in a life cycle perspective. The paper thus offers an alternative view on firm heterogeneity compared with other recent papers, where productivity differences appear as an outcome of a stochastic process.
Original languageEnglish
Place of publicationAarhus
PublisherAarhus School of Business, Aarhus University, Department of Economics
Number of pages39
ISBN (Print)9788778823212
ISBN (Electronic)9788778823229
Publication statusPublished - 2008

    Research areas

  • Product Innovation, Learning, Creative Destruction, Export Performance, Firm Heterogeneity

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