Increasing returns, monopolistic competition, and international trade: Revisiting gains from trade

We study the canonical Krugman (1979) trade model with non-CES preferences that yield autarky at finite costs. prove a non-monotone impact of gradual liberalization. At first, near autarky, emerging reduces world welfare, while free it becomes large enough to be beneficial (Krugman's result). This non-monotonicity persists under heterogenous firms. The harmful small-scale is explained by variable markups and underpriced imports, which become socially excessive. Unlike protectionists, we argue “liberalization should go far”. On other hand, show anti-dumping measures can viewed as remedy for aforementioned imports distortion.