Publication

This article presents two models of international trade under monopolistic competition and aims to give a theoretical background for explaining that sectors characterized by increasing returns are more open in small countries than in large. The paper shows that firms in increasing returns sectors face fixed, in addition to variable, trade costs; therefore both exporters and non-exporters may coexist. In contrast to standard models, increasing returns sectors turn out more open in small countries than in large ones, and small countries may be net exporters of such commodities, despite the disadvantage of a smaller home market.