Recent trade theory in the Krugman (1980) tradition predicts that countries with larger market size enjoy higher levels of total factor productivity (TFP) - and equivalently of real per capita income or welfare - as a smaller fraction of spending on inputs is affected by trade costs. However, in...

I modify a standard model of the home market to introduce entry barriers that create local rents. The existence of rents has relevant implications. First, the home market effect magnifies. Second, when countries are sufficiently unequal in size and rents are sufficiently large, a trade costs...

We study trade policy in a two-sector Krugman type model of trade. We conduct a general analysis allowing for three different instruments: tariffs, export taxes and production subsidies. For each instrument we consider unilateral trade policy without retaliation. When carefully disentangling the...