R&D, Market Structure And Trade: A General Equilibrium Analysis

That many industries exhibit highly concentrated market structures, even at the global level, calls for trade theoretic analyses which can accommodate this fact. The authors present a two-country, general equilibrium analysis in which high concentration levels can be sustained through the interaction between R&D and market structure, whilst emphasizing the effects of trade and industrial policy on wages and welfare. The world economy is characterized by asymmetric initial conditions and populations. If initial conditions are very different, free trade reduces wages in a backward economy, relative to autarky. However, the advanced economy always achieves higher wages through trade. Welfare gains from trade arise when economies are either very similar or very different.