Trade and Trade Policy with Differentiated Products: A Chamberlinian-Ricardian Model.

This paper develops a model of international trade between economies which each contain a monopolistically-competitive industry producing differentiated products under increasing returns to scale. Firms have larger shares in their domestic market than in their export market and the implications of these unequal market shares for the pattern of trade and welfare are examined. Tariff policy and industrial policy are studied, and it is establishe d that a country can increase its welfare both by import tariffs and by subsidies to domestic firms