Alternative Theories of Trade

Alternative Theories of Trade - WHY DO AND WHAT WILL...

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WHY DO AND WHAT WILL NATIONS TRADE? ALTERNATE THEORIES OF TRADE
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The Factor-Endowment/H-O-S theory of trade has limitations in explaining all of the world trade that we observe. Our explanations of trade (H-O-S) have so far only explained trade in homogeneous goods and between countries with widely differing factor endowments. They have not explained Intra-Industry Trade. Facts: Lot of world trade (50%?) is in differentiated (non-homogeneous)goods between countries with similar factor endowments. Nations export and import these goods simultaneously. This is called Intra-Industry Trade (IIT). Hence we need additional models of trade. ALTERNATE THEORIES OF TRADE
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ALTERNATE THEORIES OF TRADE Additional models of trade can be obtained by relaxing the assumptions of the H-O-S model. But not all the assumptions were limited. Some assumptions are more appropriate than the others. Look to Increasing returns to scale. Imperfect competition.
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Increasing Returns to Scale Increasing EoS =>
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