This document summarizes key concepts from Chapter 6 of the textbook "International Economics" by Dominick Salvatore. It discusses new trade theories that go beyond the Heckscher-Ohlin model by incorporating economies of scale, imperfect competition, and technological differences. International trade can be based on economies of scale through outsourcing and offshoring. Imperfect competition allows for intra-industry trade in differentiated products. The product cycle model explains how technology and trade patterns change over the lifetime of a product. Transportation costs and environmental standards also influence patterns of international trade.
Curves are of different types and for different purposes. Some of the curves are utility curve, margin curves, demand and supply curve, offer curves, etc. International trade is based on international specialization. Copy the link given below and paste it in new browser window to get more information on Offer Curves:-
http://www.transtutors.com/homework-help/international-economics/analytical-tools/offer-curves.aspx
The theory of Technical dualism is one of the theories of dualism. Professor Higgins has developed the theory of Technological Dualism. By this, he means: "The use of different production functions in the advance sector and in the traditional sectors of UDCs".
International Economics & Policy (VV2)
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Curves are of different types and for different purposes. Some of the curves are utility curve, margin curves, demand and supply curve, offer curves, etc. International trade is based on international specialization. Copy the link given below and paste it in new browser window to get more information on Offer Curves:-
http://www.transtutors.com/homework-help/international-economics/analytical-tools/offer-curves.aspx
The theory of Technical dualism is one of the theories of dualism. Professor Higgins has developed the theory of Technological Dualism. By this, he means: "The use of different production functions in the advance sector and in the traditional sectors of UDCs".
International Economics & Policy (VV2)
We Also Provide SYNOPSIS AND PROJECT.
Contact www.kimsharma.co.in for best and lowest cost solution or
Email: amitymbaassignment@gmail.com
Call: 9971223030
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3. 6.1 Introduction
Two difficulties with the H-O theory:
(1) Some questions remain regarding the empirical
validity of the theory.
(2) This implies that a great deal of today's
international trade still left unexplained.
This chapter fills this gap with some new trade
theories, which base international trade on economies
of scale, imperfect competition, and differences in the
development and spread of new technologies over
time among nations.
7. 6.3 Economies of Scale and International
(1) There are two nations (N1, N2) two commodities (X, Y)
(2) Both nations use the same technology in production.
(3) Both nations have the same amount of resources.
(4) Neither commodity is labor intensive or capital intensive.
(5) Both commodities are produced under increasing returns
to scale in both nations.
- i.e., Output grows proportionately more than the increase in inputs
of production. (eg., If all inputs are doubled, output is more than
doubled: Economies of scale.)
(6) Tastes are equal in both nations.
6.3A. Assumptions
9. 6.3 Economies of Scale and International
6.3B. Explanation
Some aspects of the analysis:
(0) With trade, each nation becomes completely specialized in the
production of one commodity.
(1) Which of the two commodities each nation becomes specialized
may result from historical accident.
(2) In real world, the nations need not be identical in every respect.
(3) Eventually, one or a few firms in the nation will capture the entire
market for a given product, leading to monopoly or oligopoly.
(4) The nations may trade similar products in the same industry (i.e.,
intra-industry trade)
10. 6.3 Economies of Scale and International
6.3C. Related Sources of International Trade
(1) International economies of scale (Case Study 6-1)
- Products manufactured by international corporations
have parts and components made in many different
nations.
- During the past decade or so, there has been a sharp
increase in international trade in parts and
components, as well as in setting up of production
facilities abroad, and these have been the source of
new and significant international economies of scale.
- E.g., The New International Economies of Scale
(Case Study 6-1)
12. 6.4 Imperfect Competition and International
Trade
6.4A. Trade Based on Production Differentiation
(1) Product differentiation and monopolistic competition
- Differentiated products: "Neither identical products, nor
different products". E.g., Cars, TV sets, etc.
- Cf: Standardized (homogeneous) products: "Identical
products."E.g., Most of the agricultural products and
labor intensive products.
- Monopolistic competition: The market organization
where there are many firms selling a differentiated
product and entry into or exit from the industry is easy.
13. 6.4 Imperfect Competition and International
Trade
6.4A. Trade Based on Production Differentiation
- Cf: Perfect competition vs. Monopoly
- Thus differentiated products are usually produced under
monopolistic competition.
(2) Product differentiation and intra-industry trade
- Intra-industry trade: a phenomenon of international
exchanging of differentiated products of the same
industry. (As a result of economies of scale, product
differentiation under monopolistic competition.)
- Inter-industry trade: a phenomenon of exchanging
completely different products. (H-O model)
19. 6.4 Imperfect Competition and International
Trade
Key characteristics of Intra-industry trade:
(1) While inter-industry trade (eg., trade in the H-O
model) is based on comparative advantage among
nations, intra-industry trade is based on product
differentiation and economies of scale.
(2) With intra-industry trade, pretrade-relative
commodity prices may no longer accurately predict
the pattern of trade.
(3) While the H-O model predicts that trade will lower
the return of the nation's scarce factor, with intra-
industry trade it is possible for all factors to gain.
20. 6.4 Imperfect Competition and International
Trade
Key characteristics of Intra-industry trade:
(4) Intra-industry trade is related to the sharp increase in
international trade in parts and components of a
product.
(5) Intra-industry trade arises more between nations with
similar tastes and income levels.
(6) While most of the trade between developed and
developing countries is inter-industry trade, an
increasing proportion of the trade among industrial
countries is intra-industry trade.
21. 6.4 Imperfect Competition and International
Trade
6.4B. Measuring Intra-Industry Trade
Intra-industry trade index (Grubel-Lloyd index):
T = 1 - | X M | / (X + M)
If T = 1, perfect intra-industry trade.
If T = 0, perfect inter-industry trade.
Case Study 6-2. U.S. Intra-Industry in Automotive Products
Case Study 6-3 Variety Gains with International Trade
6.4C. Formal Model of Intra-Industry Trade (Skip)
6.4D. Another Version of the Intra-Industry Trade Model
(Skip)