International Economics 16/11/61 Session 6 Alternative Theories of Trade (Scale Economies, Imperfect Competition, and Trade) Aj. Noom (anuphak@gmail.com) Tel.0835426434

Trade Facts in Search of Better Theory According to the “H-O Theory”, nations should trade with each others to exploit their production-side differences. Land-intensive country Labor-intensive country Export Export

Developed Countries Developing Countries Trade Different Resources

The Rise of Intra-industry Trade Developed Countries Developed Countries Trade Similar Resources Germany Japan Trade Why do they still have to trade ?

Percentage of Intra-industry Trade for Non-food Manufactured Goods

Rationales for Intra-industry Trade 1.Demand Effect Product Differentiation Consumers view the products of an industry as close but not perfect substitutes for each other. 2.Supply Effect Economies of Scale Economies of scale pulls down the price, which the create competitive advantage for an industry.

Product Differentiation VS Scale Economies

Economies of Scale 1. Internal Economies Scale 1. External Economies Scale

Global Industries Dominated by a Few Large Firms Airbus Boeing Microsoft Nintendo Sony

Monopolistic Competition and Trade Monopolistic is somewhat like “monopoly” and somewhat like “competition”. Some scale economies exist that are internal to the firm, but they are moderate. Germany Japan

MR D (0) MC Profit AC

Still No trade

Before trade After trade

Internal Scale Economies and Trade Unit Cost (No trade) Unit Cost (Free trade) Cost Decrease Price

External Scale Economies and Trade Industry’s average cost, including external economies) S1 (Not include external economies) D1 D2 S2 (Include external economies)