Permalink : http://hdl.handle.net/2115/5400

KEYWORDS : Intra-Industry Trade;Multinational Firms;Production Cost Differentials;Market Size;Trade Costs

This paper describes the patterns of trade in an oligopolistic international market. In a two country model, firms which share common technology can become either national or multinational. In the latter case, they require asymmetric plant-specific fixed costs. As the production costs and market sizes of the countries converge, intra-industry trade and foreign direct investment (FDI) occur. Then the supply logistics of firms in each country are determined by the level of trade costs and the ease with which FDI can be undertaken. The effects of several trade policies are examined within the above context and the applicability of the model is demonstrated with examples from the Japanese automobile industry. (JEL Classifi-cation: F12, F23)