This paper quantitatively tests the quot;new trade theoryquot; based on product differentiation, increasing returns, and imperfect competition. We employ a standard model, which allows both changes in the distribution of income among industrialized countries, emphasized by Helpman and Krugman...

We study the quarterly bilateral real exchange rate and the relative price of non-traded to traded goods for 1225 country pairs over 1980-2005. We show that the two variables are positively correlated, but that movements in the relative price measure are smaller than those in the real exchange...