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Country size, technology, and Ricardian comparative advantage
Author(s) -
Ara Tomohiro
Publication year - 2020
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12461
Subject(s) - monopolistic competition , economics , margin (machine learning) , productivity , welfare , competition (biology) , market size , monetary economics , international economics , macroeconomics , microeconomics , monopoly , market economy , ecology , machine learning , biology , computer science
Abstract We develop a Ricardian model with heterogeneous firms in which country size and technology play a crucial role in the firm‐level variables. We show that a country with larger size and better technology exhibits higher productivity and lower price–cost margins even under assumptions of C.E.S. preferences and monopolistic competition. Welfare is higher in this country, not only due to the increased product variety but also due to increased competition in a domestic market. We also show that country size and technology impact critically on the intensive margin as well as the extensive margin in the gravity equation.