Factor Endowments, Country Size, and Trade Liberalisation: The Effects on Structure of Trade and Industry

This paper analyses the effects of non-tariff barriers, in terms of both variable and fixed export costs, on the structure of trade and industry. We find that the relationship between fixed and variable trade costs affects industrial structure and determines whether international trade emerges. Such implications cannot be derived by considering variable trade costs alone. Given that trade emerges, only variable, but not fixed trade costs, influence factor price differentials, trade volumes and structure, and thus the share of intra-industry trade. It is also shown that country size differences affect the relationship between variable trade costs and trade structure.