Returns to scale, imperfect competition and aggregate demand and trade policy effects in a two-country model

This paper constructs a simple general equilibrium two-country model with flexible exchange rates, specialization in production, and oligopolistic firms. The model is simulated in order to investigate how returns to scale and imperfect competition influence the process through which the aggregate demand and trade policy effects are transmitted internationally. The possibility that aggregate demand and trade policies enacted by one country can have “beggar my neighbor†effects on the other country cannot be excluded. Copyright Kluwer Academic Publishers 1992