A note on product differentiation and locational protection

Abstract

This paper critically examines Steed's recent attempt to attribute dynamic product differentiation with a locationally protective function in the trade in high-cost clothing between the developed countries of Western Europe. An alternative explanation is offered which explains the distance restriction on trade in terms of the high market uncertainty in selling high-cost clothing, which restricts the size of firm and therefore its ability to export on a large scale. Product differentiation remains as a factor with trade expansionary rather than trade restricting characteristics.