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External Economies of Scale and Comparative Advantage

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  • Wilfred J. Ethier

    () (Department of Economics, University of Pennsylvania)

  • Roy J. Ruffin

    () (Department of Economics, University of Houston)

Abstract

We investigate the interplay, in international trade, between comparative advantage and increasing returns to scale that are external to the firm. We focus especially on “advantage reversals,” where the country with a comparative-cost disadvantage in producing a good nevertheless is able to export it because of the economies of large-scale production. We examine trade policy in such a situation, looking especially at whether that policy should aim at basic policy-regime change.

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Bibliographic Info

Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 08-008.

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Length: 18 pages
Date of creation: 19 Feb 2008
Date of revision:
Handle: RePEc:pen:papers:08-008

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Web page: http://economics.sas.upenn.edu/pier
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Keywords: external increasing returns to scale; advantage reversals; size reversals; scale-dominant economy; comparative-cost dominant economy;

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  1. 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.
  2. Chipman, John S, 1970. "External Economies of Scale and Competitive Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 347-85, August.
  3. Kemp, Murray C & Shimomura, Koji, 2000. "Increasing Returns and International Trade," Review of International Economics, Wiley Blackwell, vol. 8(4), pages 614-18, November.
  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.
  5. Panagariya, Arvind, 1981. "Variable Returns to Scale in Production and Patterns of Specialization," American Economic Review, American Economic Association, vol. 71(1), pages 221-30, March.
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