Welfare Analysis of the Krugman Model of Trade

In this appendix we solve a multi-country version of the monopolistic competition model with homogeneous …rms by Krugman (1980). Our objective is to derive relationships in the model related to the elasticity of trade and the welfare gains from an increase in the trade to GDP ratio. The main result is that these relationships are comparable to the related expressions arising from the main quantitative heterogeneous …rms models: when the models are calibrated to deliver a given