Linkage Effects, Oligopolistic Competition, and Core-Periphery

The impact of international trade is studied in a general equilibrium model in which firms engage in oligopolistic competition and linkage effects are present. Results are derived analytically. If countries have the same technologies and the same labor endowment, core-periphery pattern arises only if the transportation costs are sufficiently low. The impact of a change of the level of the transportation costs on the welfare of developed countries is sensitive to the level of linkage effects. When the level of linkage effects is sufficiently high, a decrease of the level of the transportation costs will never decrease the welfare of developed countries.