Modelling Trade in Higher Education under Monopolistic Competition and Internal Economies of Scale: A Dixit-Stiglitz Framework Approach

This paper provides a theoretical and empirical model on the trade in higher education services between two symmetric countries under the monopolistic competition with internal economies of scales model by Dixit & Stiglitz. Universities are treated as being under the structure of monopolistic competition as they are assumed to be a differentiated providers of services which follow the increasing returns to scale, while the students who are the users of the services are assumed to have scope effects that favours variety. To estimate the elasticity of substitution, markup levels, fixed costs, marginal costs and gains from trade in terms of consumer surplus, the study employs a data set that have been collected from twenty large universities in India and the UAE and simulates it. The results validate the theoretical predictions for intra-industry trade in education to gain variety, and reduce the average costs further, when operating under an integrated market situation for welfare enhancement. Graphic methods and regression analysis provide supporting evidence of the presumption that underpins the framework and its application to international service trade.