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How New is the "New Trade Theory" of the Past Two Decades?

  • Andrea Maneschi

    ()

    (Department of Economics, Vanderbilt University)

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    This paper looks at the paradigm of the past two decades that goes under the name of "new trade theory" or "new international economics", and rejects the assumptions underlying mainstream trade theory such as constant returns to scale and perfect competition. Authors contributing to it include Krugman, Dixit, Lancaster, Grossman, Helpman, Brander, Spencer and Ethier. After describing the main tenets of this new paradigm, Section 1 explores in greater depth the reasons for its birth. The new trade theory offers rationales for trade that often dispense altogether with the notion of comparative advantage, and new insights into the nature of the gains from trade. Section 2 examines its antecedents in the history of economic thought, which hark back to Adam Smith's productivity theory of trade according to which productivity rises when specialization is stimulated by a more extended market. Section 3 attempts to measure the "progress" which the new trade theory has achieved with respect to these classical antecedents, and studies its relation to the infant industry argument for protection popularized by J. S. Mill. Section 4 assesses the progress claimed by the new trade theorists with respect to the mainstream theory of trade. Section 5 draws some conclusions, and explores whether the theoretical advances of the new trade theory constitute a net advance over similar theories formulated in the classical period.

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    File URL: http://www.accessecon.com/pubs/VUECON/vu00-w27.pdf
    File Function: First version, 2000
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    Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0027.

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    Date of creation: Jul 2000
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    Handle: RePEc:van:wpaper:0027
    Contact details of provider: Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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    1. 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.
    2. Terrence Bensel & Bruce Elmslie, 1992. "Rethinking international trade theory: a methodological appraisal," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 128(2), pages 249-265, June.
    3. Kenneth J. Arrow, 1962. "The Economic Implications of Learning by Doing," Review of Economic Studies, Oxford University Press, vol. 29(3), pages 155-173.
    4. Jagdish Bhagwati, 1989. "Is free trade passé after all?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 125(1), pages 17-44, March.
    5. Andrea Maneschi, 1998. "Comparative Advantage in International Trade," Books, Edward Elgar Publishing, number 856, April.
    6. Frank D. Graham, 1923. "The Theory of International Values Re-examined," The Quarterly Journal of Economics, Oxford University Press, vol. 38(1), pages 54-86.
    7. Filippo Cesarano, 1983. "On the role of the history of economic analysis," History of Political Economy, Duke University Press, vol. 15(1), pages 63-82, Spring.
    8. Walker, Donald A., 1999. "The Relevance for Present Economic Theory of Economic Theory Written in the Past," Journal of the History of Economic Thought, Cambridge University Press, vol. 21(01), pages 7-26, March.
    9. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Oxford University Press, vol. 43(2), pages 217-235.
    10. Baldwin, Robert E, 1969. "The Case against Infant-Industry Tariff Protection," Journal of Political Economy, University of Chicago Press, vol. 77(3), pages 295-305, May/June.
    11. Raymond Vernon, 1966. "International Investment and International Trade in the Product Cycle," The Quarterly Journal of Economics, Oxford University Press, vol. 80(2), pages 190-207.
    12. Kenneth E. Boulding, 1971. "After Samuelson, Who Needs Adam Smith?," History of Political Economy, Duke University Press, vol. 3(2), pages 225-237, Fall.
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