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Issue 5(1), October 2010 -- Paper Abstracts
Girard  (p. 9-22)
Cooper (p. 23-32)
Kunz-Osborne (p. 33-41)
Coulmas-Law (p.42-46)
Stasio (p. 47-56)
Albert-Valette-Florence (p.57-63)
Zhang-Rauch (p. 64-70)
Alam-Yasin (p. 71-78)
Mattare-Monahan-Shah (p. 79-94)
Nonis-Hudson-Hunt (p. 95-106) 



JOURNAL OF APPLIED BUSINESS AND ECONOMICS


Revisiting the Marriage of Monopolistic Competition and Factor Proportions Theories



Author(s): Arnab Nayak

Citation: Arnab Nayak, (2020) "Revisiting the Marriage of Monopolistic Competition and Factor Proportions Theories," Journal of Applied Business and Economics, Vol. 22, Iss.5,  pp. 137-150

Article Type: Research paper

Publisher: North American Business Press

​Abstract:

This paper reconsiders the factor proportions-driven model of trade under a monopolistic competition framework when cost functions are non-homothetic. The pattern of trade is fully analyzed for a twocountry, two-sector, and two-factor monopolistic competition model with transport costs. The main results of this transformed cost assumption that differ from previous literature include: (a) the average firm size in relatively capital-abundant countries is smaller; (b) controlling for industry demand, capitalabundant countries support a larger number of varieties in equilibrium; and (c) capital-abundant countries use more capital-intensive techniques in every sector. This model also generates many features of modern trade that cannot be solely explained by traditional horizontal differentiation models using a single factor or even two factors, assuming a homothetic cost function: (1) capital-abundant countries export higher priced varieties; (2) varieties produced using higher capital-intensive techniques have higher prices; (3) capital accumulation leads to increased relative prices over time; and (4) the higher priced manufacturing goods sold by richer countries also capture larger market shares relative to lower priced exports.