SCALE ECONOMIES, INTRA-INDUSTRY TRADE AND INDUSTRY LOCATION IN THE "NEW TRADE THEORY"

Marius Brülhart

Economics Technical Papers from Trinity College Dublin, Economics Department

Abstract: This paper exposes some common misinterpretations of the "new trade theory". First, the view that high scale economies give rise to high levels of intra-industry trade is challenged. It is shown that the monopolistic-competition trade model predicts a negative relationship between internal scale economies and intra-industry trade. Second, in spite of a common perception that the "new" theory explains ever growing levels of intra-industry trade in an integrating world economy, a scrutiny of the basic model indicates that reduced distance costs result in lower intra-industry trade. However, if temporary re-location rigidities are considered, integration entails an initial surge of intra-industry trade, which eventually withers away, when the centripetal forces towards inter-industry specialisation take over. This might contribute towards an explanation for observed reversals of intra-industry trade growth among industrial countries.

JEL-codes: F12 F15 (search for similar items in EconPapers)
Date: 1995
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:tcd:tcduet:954

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