This paper investigates the interlinkage in the business cycles of large-country economies in a free-trade equilibrium. We consider a two-country, two-good, two-factor general-equilibrium model with Cobb-Douglas technologies and linear preferences. We also assume decreasing returns in both...

The authors build a trade model that renders tractable the process in which imperfect competition in a country's downstream sector affects the rest of the world through international trade. For this purpose, internationally traded goods are viewed as middle products in the vertical chain of...