Two-country, Two-good, Two-factor Intra-industry Trade Model Introducing Conjectural Variations

Abstract

The purpose of this paper is to analyze the effect of conjectural variations on economic welfare, by using the model of intra-industry trade. So this paper develops a model of a two-sector economy trade (the one sector is perfectly competitive, the other is monopolistically competitive) with two factors of production, and introduces conjectural variations into the model. As a result, in terms of certain parameter values and conjectural variations, the level of economic welfare of open economy is lower than that of closed economy. This paper analyzes this result, and makes the characteristic of the model of intra-industry trade clear