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The gains from external scale economies and comparative advantage

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  • Kwok Tong Soo

Abstract

This paper develops a many-good, many-country model of international trade which combines comparative advantage and external scale economies. It is shown that the gains from external scale economies outweigh those from comparative advantage as the number of goods increases. Small countries gain more than large countries from trade, because large countries are more similar to the rest of the world than small countries. Small countries are also more specialised in production than large countries, despite the presence of external scale economies.

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Paper provided by Lancaster University Management School, Economics Department in its series Working Papers with number 33867662.

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Date of creation: 2013
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Handle: RePEc:lan:wpaper:33867662

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  1. Courant, P.N. & Deardorff, A.V., 1989. "International Trade With Lumpy Countries," Working Papers 242, Research Seminar in International Economics, University of Michigan.
  2. Gene M. Grossman & Esteban Rossi-Hansberg, 2010. "External Economies and International Trade Redux," The Quarterly Journal of Economics, MIT Press, vol. 125(2), pages 829-858, May.
  3. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
  4. Young, Allyn A., 1928. "Increasing Returns and Economic Progress," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 38, pages 527-542.
  5. Kremer, Michael, 1993. "Population Growth and Technological Change: One Million B.C. to 1990," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 681-716, August.
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  7. Ethier, Wilfred J, 1982. "Decreasing Costs in International Trade and Frank Graham's Argument for Protection," Econometrica, Econometric Society, vol. 50(5), pages 1243-68, September.
  8. Ruffin, Roy J, 1988. "The Missing Link: The Ricardian Approach to the Factor Endowments Theory of Trade," American Economic Review, American Economic Association, vol. 78(4), pages 759-72, September.
  9. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x.
  10. Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers 11375, Iowa State University, Department of Economics.
  11. Ruffin, Roy J., 2009. "The gains from specialization and population size," Economics Letters, Elsevier, vol. 105(1), pages 76-77, October.
  12. Nordas, Hildegunn Kyvik, 2000. "Comparative Advantage and Economies of Scale: When Does Ricardo Dominate Smith?," Review of International Economics, Wiley Blackwell, vol. 8(4), pages 667-80, November.
  13. James R. Melvin, 1969. "Increasing Returns to Scale as a Determinant of Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 2(3), pages 389-402, August.
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