Modeling foreign trade and differentiation: theoretical foundations and estimates.

Summary For the last ten years, foreign trade models have taken into account the differentiated nature of the good emphasized by international trade theory. When a variety demand constraint is introduced, the effects of differentiation on trade are modified insofar as it is not so much the number of varieties produced in a country that determines its competitiveness but rather the absence of a constraint on the number of varieties demanded. However, there is no statistical measure of the number of varieties, but it is shown, from a model of monopolistic competition with a two-factor technology, that the number of varieties can be related to the capital stock. The estimation of import and export functions for the major industrialized countries is carried out using an econometrics adapted to the study of non-stationary variables. The results show in general that the capital accumulation variable has a significant influence on the trade of industrialized countries. However, this variable measures the expansion of the number of varieties more than the imbalance between supply and demand. In this respect, it can be shown that the excess demand for varieties can be linked to the cessation of business activity. The estimation of the model for France highlights the existence of such a constraint as well as the role of foreign trade in the rebalancing.