The gains from external scale economies and comparative advantage
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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