Mobile capital, variable elasticity of substitution, and trade liberalization

Ching Mu Chen, Dao Zhi Zeng

Research output: Contribution to journalArticlepeer-review

7 Citations (Scopus)


This article investigates the impact of trade liberalization on trade patterns, firm markups, and firm locations in a two-factor monopolistic competition model that features variable elasticity of substitution by a general additively separable utility. We find that, depending on the relative export hurdles, either direction of one-way trade may occur when trade opens up. Its direction determines the responses of firm-level markups and various home market effects to falling trade costs. Our results show that some important findings in the literature are robust only with particular classes of preferences. We provide a possible rationale for some well-known conflicting empirical facts.

Original languageEnglish
Pages (from-to)461-494
Number of pages34
JournalJournal of Economic Geography
Issue number2
Publication statusPublished - 2018 Mar 1


  • Choke price
  • Firm-level markups
  • Home market effect
  • One-way trade
  • Pro-competitive effect


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