Increasing Returns and the Gains from Trade

Earl L Grinols

International Economic Review, 1991, vol. 32, issue 4, 973-84

Abstract: It is known that gains from trade are positive in the presence of increasing returns to scale if all increasing-returns industries expand in the shift from autarky. Sufficient conditions for gains when some increasing-returns industries expand and others contract suffer from the limitations that the production frontier must be convex, changes must satisfy a prespecified hierarchical pattern, or that total factor supplies must be fixed between equilibria, conditions which can not generally be assured. This paper develops a necessary and sufficient condition for gains and from it a sufficient condition that does not depend on these restrictions. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1991
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