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Monopolistic competition and international trade in a three factor economy.

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Thomas J. Carter

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This international trade thesis uses three special assumptions: (1) One of the two sectors uses three factors of production; (2) The other sector is monopolistically competitive; (3) The capital-labor ratio of a firm in the monopolistically competitive industry rises with the firm's output.

Three applications of this model form the main part of the thesis. The first is concerned with the effects of technological progress on wages. The results suggest that progress is likely to increase wages in industrial countries and decrease wages in less-developed countries. The second section derives the dynamic effects of a tariff change assuming imperfect capital mobility. The paths of several variables are described. The results depend critically on the cost of moving capital within a sector. The third section discusses competition policies such as antitrust. Due to a terms of trade effect, anti-trust policies are likely to benefit agricultural exporters (such as the U.S.) while agricultural importers would more likely benefit from policies that increase firm size.


University of Wisconsin, Madison

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