Abstract
As we saw in Chap. 3, already in 1776 Adam Smith pointed out the importance of increasing returns to scale for international trade in his The Wealth of Nations. It is rather recent, however, that the role of increasing returns has begun to be discussed seriously in the modern theory of international trade. Since the assumption of perfect competition, which has been widely made, is not consistent with the so-called internal economies, Marshallian external economies have been considered by, e.g., Mathews (1949), Melvin (1969), and Kemp & Negishi (1970).
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Notes
- 1.
According to Marshall, economies of scale are divided into external economies, which depend on the general development of the industry, and internal economies, which depend on the resources of the individual firms engaged in it (Marshall 1961, Book IV, Chap. IX). The latter is not consistent with the equilibrium of perfect competition for which the marginal cost of a firm must be increasing. For internal economies, see Sect.17.2 Appendix.
- 2.
See Chap. 3, p. 19 for the Walrasian and Sraffian views of the perfect competition. The latter view is discussed in Appendix.
- 3.
To be more loyal to Marshall, we have to name the curve, not the supply curve but the particular expenses curve, since it is based on the assumption that the scale of the industry is given (Marshall 1961, p. 811).
- 4.
- 5.
The price remains also unchanged against the changes in the aggregate level of the demand, since the point A shifts horizontally. See Sweezy (1939).
- 6.
See Negishi (1979) for the case where international trade is carried out only by exporters of two countries and the case where international trade is carried out exclusively by exporters and importers of one country.
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Negishi, T., Negishi, T. (2014). External Economies. In: Developments of International Trade Theory. Advances in Japanese Business and Economics, vol 2. Springer, Tokyo. https://doi.org/10.1007/978-4-431-54433-3_17
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