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

2. 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

3. Developed Countries
Developing Countries
Trade
Different Resources

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

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

6. 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.

7. Product Differentiation VS Scale Economies

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

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

10. 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

11. MR
D (0) MC
Profit AC

12. Still No trade

13. Before trade
After trade

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

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