NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Gary Lyn

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Institutional Affiliation: Iowa State University

NBER Working Papers and Publications

August 2016Grounded by Gravity: A Well-Behaved Trade Model with Industry-Level Economies of Scale
with Konstantin Kucheryavyy, Andrés Rodríguez-Clare: w22484
Although economists have long been interested in the implications of Marshallian externalities (i.e., industry-level external economies of scale) for trading economies, the large number of equilibria that they typically imply has kept such externalities out of the recent quantitative trade literature. This paper presents a multi-industry trade model with industry-level economies of scale that nests a Ricardian model with Marshallian externalities as well as multi-industry versions of Krugman (1980} and Melitz (2003). The behavior of the model depends on two industry-level elasticities: the trade elasticity and the scale elasticity. We show that there is a unique equilibrium if the product of the trade and scale elasticities is weakly lower than one in all industries. The welfare analysis r...
 
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