A Hierarchical Market Model of International Trade

The characteristics of hierarchical trade flows, when placed in the context of differentiated markets, can provide some insight into the underlying bases of contemporary international trade. A model that relies on differentiated market theory and hierarchical market theory is developed. Trade characteristics derived in the model, concerning the frequency and value of trade, are empirically tested. Empirical results indicate that the model provides a useful framework for the analysis of contemporary international trade.     

SHARABLE INPUTS,PRODUCT VARIETY,AND CITY SIZES*

In this paper, I investigate some of the causes of city formation in spatial economies. A model is proposed in which an intermediate differentiated input shared by more than one industry is the cause of the formation of diversified cities. The desire of both the traded-good and the local-good industries to employ a variety of inputs from the intermediate industry provides the reason for the agglomeration of the three industries. In addition, the paper contains a comparative-statics analysis of the model in an open and a closed-city framework. It is demonstrated that the larger the city, the more variety of intermediate inputs the city can provide and the more specialized it is in the production of the traded-good. Moreover, the model suggests that different industrial structures will result in different city Sizes.