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Scale Economies, Intra-Industry Trade And Industry Location In The "New Trade Theory"


  • Marius Brülhart


This paper exposes some common misinterpretations of the "new trade theory". First, the view that high scale economies give rise to high levels of intra-industry trade is challenged. It is shown that the monopolistic-competition trade model predicts a negative relationship between internal scale economies and intra-industry trade. Second, in spite of a common perception that the "new" theory explains ever growing levels of intra-industry trade in an integrating world economy, a scrutiny of the basic model indicates that reduced distance costs result in lower intra-industry trade. However, if temporary re-location rigidities are considered, integration entails an initial surge of intra-industry trade, which eventually withers away, when the centripetal forces towards inter-industry specialisation take over. This might contribute towards an explanation for observed reversals of intra-industry trade growth among industrial countries.

Suggested Citation

  • Marius Brülhart, 1995. "Scale Economies, Intra-Industry Trade And Industry Location In The "New Trade Theory"," Economics Technical Papers 954, Trinity College Dublin, Department of Economics.
  • Handle: RePEc:tcd:tcduet:954

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    References listed on IDEAS

    1. Osborn, Denise R, et al, 1988. "Seasonality and the Order of Integration for Consumption," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 50(4), pages 361-377, November.
    2. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-692, December.
    3. Osborn, Denise R., 1990. "A survey of seasonality in UK macroeconomic variables," International Journal of Forecasting, Elsevier, vol. 6(3), pages 327-336, October.
    4. Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
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    Cited by:

    1. Traistaru, Iulia & Nijkamp, Peter & Longhi, Simonetta, 2002. "Regional specialization and concentration of industrial activity in accession countries," ZEI Working Papers B 16-2002, University of Bonn, ZEI - Center for European Integration Studies.
    2. Simonetta Longhi & Peter Nijkamp & Iulia Traistaru, 2003. "Determinants of Manufacturing Location in EU Accession Countries," ERSA conference papers ersa03p310, European Regional Science Association.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration


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