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Increasing Returns and the Theory of International Trade

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Author Info
Paul R. Krugman

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Abstract

Increasing returns are as fundamental a cause of international trade as comparative advantage, but their role has until recently been neglected because of the problem of modelling market structure. Recently substantial theoretical progress has been made using three different approaches. These are the Marshallian approach, where economies of scale are assumed external to firms; the Chamberlinian approach, where imperfect competition takes the relatively tractable form of monopolistic competition; and the Cournot approach of noncooperative quantity-setting firms. This paper surveys the basic concepts and results of each approach. It shows that some basic insights are not too sensitive to the particular model of market structure. Although much remains to be done, we have made more progress toward a general analysis of increasing returns and trade than anyone would have thought possible even a few years ago.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1752.

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Date of creation: Nov 1985
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Handle: RePEc:nbr:nberwo:1752

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December. [Downloadable!] (restricted)
  2. Ethier, Wilfred, 1979. "Internationally decreasing costs and world trade," Journal of International Economics, Elsevier, vol. 9(1), pages 1-24, February. [Downloadable!] (restricted)
  3. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Blackwell Publishing, vol. 43(2), pages 217-35, June. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. Feenstra, Robert C & Judd, Kenneth L, 1982. "Tariffs, Technology Transfer, and Welfare," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1142-65, December. [Downloadable!] (restricted)
  6. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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  7. 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. [Downloadable!] (restricted)
  8. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Louis Makowski & Joseph M. Ostroy, 1991. "The Margin of Appropriation and an Extension of the First Theorem of Welfare Economists," UCLA Economics Working Papers 629, UCLA Department of Economics. [Downloadable!]
    Other versions:
  2. Konchyn, Vadym, 2006. "The Evolution of Ukrainian Economy: New Trade Theory Evidence," MPRA Paper 588, University Library of Munich, Germany, revised 07 Sep 2006. [Downloadable!]
  3. G. Ietto-Gillies, 1998. "Location of Affiliates and Degree of Internationalisation: An Analysis of the World's Largest 664 TNCs," CIBS Research Papers in International Business 14-98, London South Bank University CIBS. [Downloadable!]
  4. G. Ietto-Gillies, 1998. "Earnings From Foreign Direct Investment: Possible Effects on Domestic Economies and Patterns in EU Countries," CIBS Research Papers in International Business 9-98, London South Bank University CIBS. [Downloadable!]
  5. J. Mohan Rao, 1998. "Development in the Time of Globalization," Working Papers wp1, Political Economy Research Institute, University of Massachusetts at Amherst. [Downloadable!]
  6. Carlos Pombo, 2001. "Intra-industry Trade and Innovation: an empirical study of the Colombian manufacturing industry," International Review of Applied Economics, Taylor and Francis Journals, vol. 15(1), pages 77-106, January. [Downloadable!] (restricted)
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