Monopolistic competition with cross-country technological differences and international trade

We develop a two-factor, three-sector model of international trade in which there are cross-country technological differences in the monopolistically competitive sector. Firms in one country have a technology with high fixed costs and low marginal costs; firms in the other country have a technology with low fixed but high marginal costs. Under this model, although not under the monopolistically competitive model with identical technologies, trade patterns are determined by the interaction between the distribution of factor endowments (i.e., the Heckscher-Ohlin aspect) and technological differences in the monopolistically competitive sector (i.e., the Chamberlinian-Ricardian aspect). Furthermore, we show that autarky commodity prices are not very useful for predicting trade patterns, which is counterintuitive and again contrary to findings under the monopolistically competitive model with identical technologies. (c) 2005 Elsevier B.V. All rights reserved.