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External Economies of Scale and Comparative Advantage

Author

Listed:
  • 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.

Suggested Citation

  • Wilfred J. Ethier & Roy J. Ruffin, 2008. "External Economies of Scale and Comparative Advantage," PIER Working Paper Archive 08-008, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    • Handle: RePEc:pen:papers:08-008
    as

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    References listed on IDEAS

    as
    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. Helpman, Elhanan, 1984. "Increasing returns, imperfect markets, and trade theory," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 7, pages 325-365, Elsevier.
    3. John S. Chipman, 1970. "External Economies of Scale and Competitive Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 347-385.
    4. Ethier, Wilfred J, 1982. "Decreasing Costs in International Trade and Frank Graham's Argument for Protection," Econometrica, Econometric Society, vol. 50(5), pages 1243-1268, September.
    5. Frank D. Graham, 1923. "Some Aspects of Protection Further Considered," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 37(2), pages 199-227.
    6. Murray C. Kemp & Koji Shimomura, 2000. "Increasing Returns and International Trade," Review of International Economics, Wiley Blackwell, vol. 8(4), pages 614-618, November.
    7. Kemp, Murray C & Shimomura, Koji, 2000. "Increasing Returns and International Trade," Review of International Economics, Wiley Blackwell, vol. 8(4), pages 614-618, November.
    8. Panagariya, Arvind, 1981. "Variable Returns to Scale in Production and Patterns of Specialization," American Economic Review, American Economic Association, vol. 71(1), pages 221-230, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    external increasing returns to scale; advantage reversals; size reversals; scale-dominant economy; comparative-cost dominant economy;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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