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Title: Monopolistic Competition, Trade, and Endogenous Spatial Fluctuations

Author(s): Gianmarco Ottaviano

Publication Date: February 1996

Keyword(s): Increasing Returns, International Trade, Monopolistic Competition and Spatial Fluctuations

Programme Area(s): International Trade and Regional Economics

Abstract: This paper investigates the possibility of endogenous fluctuations in the international distribution of economic activities in the presence of increasing returns, monopolistic competition, trade and convex adjustment costs without allowing for any local productive externalities. Using a two-country dynamic general equilibrium model, it derives necessary and sufficient conditions for the existence of self-reinforcing relocation processes. It shows that the occurrence of multiple equilibria and endogenous fluctuations is associated with a high degree of increasing returns to scale as well as low trade and adjustment costs. Under such circumstances relocation processes are driven by self-fulfilling expectations

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Bibliographic Reference

Ottaviano, G. 1996. 'Monopolistic Competition, Trade, and Endogenous Spatial Fluctuations'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1327