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Journal of Economic Integration 2005 June;20(2) :252-262.
Trade Patterns and Welfare

Roberto A. De Santis Frank Stähler 

European Central Bank
University of Otago
Copyright ©2005 Journal of Economic Integration

By employing a model with international trade costs and imperfect competition, in which a domestic firm serves both the domestic market and the foreign market, we show that intraindustry trade compared to intersectoral trade is globally, but not mutually, welfare improving. When also foreign firms become active, competition strengthens but domestic welfare declines, because domestic consumers have to bear trade costs.

JEL Classifications: F12, F15

Keywords: Trade | Development | Imperfect competition | Welfare
1. Verma, S.K. (1998), Exhaustion of Intellectual Property Rights and Free Trade Article 6 of the TRIPS Agreement, International Review of Industrial Property and Copyright Law, 29: 534-567.
2. Brander, J.A. (1981), Intraindustry trade in identical commodities, Journal of International Economics, 11: 1-14.
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