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The gains from external scale economies and comparative advantage


  • Kwok Tong Soo


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.

Suggested Citation

  • Kwok Tong Soo, 2013. "The gains from external scale economies and comparative advantage," Working Papers 33867662, Lancaster University Management School, Economics Department.
  • Handle: RePEc:lan:wpaper:33867662

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    References listed on IDEAS

    1. Courant, Paul N & Deardorff, Alan V, 1992. "International Trade with Lumpy Countries," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 198-210, February.
    2. Gene M. Grossman & Esteban Rossi-Hansberg, 2010. "External Economies and International Trade Redux," The Quarterly Journal of Economics, Oxford University Press, vol. 125(2), pages 829-858.
    3. Ethier, Wilfred J, 1982. "Decreasing Costs in International Trade and Frank Graham's Argument for Protection," Econometrica, Econometric Society, vol. 50(5), pages 1243-1268, September.
    4. Frank D. Graham, 1923. "Some Aspects of Protection Further Considered," The Quarterly Journal of Economics, Oxford University Press, vol. 37(2), pages 199-227.
    5. Ruffin, Roy J., 2009. "The gains from specialization and population size," Economics Letters, Elsevier, vol. 105(1), pages 76-77, October.
    6. Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers Archive 11375, Iowa State University, Department of Economics.
    7. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, July.
    8. 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.
    9. Caballero, Ricardo J. & Lyons, Richard K., 1990. "Internal versus external economies in European industry," European Economic Review, Elsevier, vol. 34(4), pages 805-826, June.
    10. 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.
    11. 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.
    12. Michael Kremer, 1993. "Population Growth and Technological Change: One Million B.C. to 1990," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 681-716.
    13. 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 667-680, November.
    14. 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 759-772, September.
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    More about this item


    External scale economies; Comparative advantage; Gains from trade;

    JEL classification:

    • F1 - International Economics - - Trade

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