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Ch6_Alternative Theories of Trade

Ch6_Alternative Theories of Trade - ALTERNATIVE THEORIES OF...

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•1 1 ALTERNATIVE THEORIES OF TRADE ALTERNATIVE THEORIES OF TRADE 7 Overview Overview Why do developed countries trade with each other so much? Why is there so much cross-trade in similar products? H-O theory doesn’t have an answer for this One answer is: Economies of Scale Economies of Scale Internal economies External economies 8 Review Review Trade means that you export what you make relatively cheaply, and import import the other Absolute or Relative advantage : Differences in technologies (or costs) drive trade Heckscher-Ohlin; same technologies : Differences in factor endowments drive trade
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