1、Chapter 5Economies of Scale, Imperfect Competition, and International TradeNew International Trade TheoryChapter 52Complementary Theories for H-O TheorynEconomies of ScalenImperfect CompetitionnDifferences in Dynamic Changes in Technology among NationsnTransportation Costs and Environmental Standard
2、s Practical Basis of Todays International TradeNew International Trade TheoryChapter 53OutlinenH-O Model and New Trade TheoriesnEconomies of Scale and International TradenImperfect Competition and International TradenTrade Based on Dynamic Technological DifferencesnCosts of Transportation, Environme
3、ntal Standards and International TradeChapter 54 5.1 The H-O Model and New Trade Theories1. There are two nations (Nation 1 and 2), two commodities (commodity X and Y), and two factors of production (labor and capital).2. Both nations use the same technology in production. Relaxing assumptions of H-
4、O model and NTT Technology gap and product cycle modelChapter 55Relaxing Assumptions3. Commodity X is labor intensive and commodity Y is capital intensive in both nations.4. Both commodities are produced under constant returns to scale in both nations.No factor-intensity reversalEconomies of scale a
5、nd international trade Chapter 56Relaxing Assumptions5. There is incomplete specialization in production in both nations.6. Tastes are equal in both nations.7. There is perfect competition in both commodities and factor markets in both nations. The theory of intra-industry tradeChapter 57Relaxing As
6、sumptions8. There is perfect factor mobility within each nation ( Internal factor mobility) but no international factor mobility.9. There are no transportation costs, tariffs, or other obstructions to the free flow of international trade. Only modify H-O theory (reduce the volume and benefits of int
7、ernational trade)Chapter 58Relaxing Assumptions10. All resources are fully employed in both nations.11. International trade between the two nations is balanced. If unutilized the H-O theory could incorrectly predict the pattern of tradeChapter 59ConclusionsnRelaxing most assumptions only modifies bu
8、t does not invalidate the H-O theorynInternational trade that H-O theory leaves unexplained calls for new theoriesChapter 5105.2 Economies of Scale and International TradenDefinition Increasing Returns to ScalenIllustrationnFurther ExplanationsnExternal EconomiesChapter 5115.2.1 DefinitionnIncreasin
9、g Returns to Scale refers to the production situation where output grows proportionately more than the increase in inputs or factors of production. Economies of Scale nIf all inputs are doubled, output is more than doubled.Why?Chapter 512Explanation for Economies of ScaleAt a larger scale of operati
10、on Each worker can specialize in performing a simple repetitive task Introduction of more specialized and productive machinery Whats the figure of production frontier?Convex from the origin FIGURE 5-1 Mutually Beneficial Trade Based on Economies of Scale. 5.2.2 Illustration (P169) Assumption: two na
11、tions are identical in every respect A : Equilibrium point in both nations in Autarky PA : No-trade equilibrium-relative commodity price in both nations B and B : Points of complete specialization in nation 1 and nation 2 E : Point of final consumption in both nations (Both gain 20X and 20 Y) 60X 60
12、Y(same supply and demand)Chapter 5145.2.3 Further ExplanationnThe Pattern of specialization is not absolute and may result from historical accidentnWith economies of scale the two nations need not be identical in every respectnIf economies of scale persist over a sufficiently long range of outputs,
13、monopoly or oligopoly will occurnInternational Economies of Scale See Case Study 6-1 (P170)Chapter 515Key TermsnMonopolynOligopoly A single producer of a commodity for which there is no substitute A few producer of a homogeneous or differentiated productChapter 5165.2.4 External EconomiesnExternal E
14、conomies refer to the reduction in each firms average costs of production as the entire industry output expandsnEconomies of Scale refer to the reduction in the average costs of production as the firms output expands A Different Term from Economies of ScaleHypothesis about Economies of Scale nS. B.
15、Linder An Essay on Trade and Transformation (1961)n Opinions of Preference Similarity or Overlapping Demands Hypothesis A nation should export those manufactured products for which a large domestic market exists and import those products that appeal to its low- and high-income minorities.nConclusion
16、 Trade in manufactures is likely to be largest among countries with similar tastes and income levels.Chapter 5185.3 Imperfect Competition and International TradenTrade Based on Product DifferentiationnMeasuring Intra-Industry TradenFormal Model of Intra-Industry TradenAnother Version of the ModelCha
17、pter 5195.3.1 Trade Based on Product Differentiation Intra-Industry tradeHomogeneous Products Differentiated ProductsInter-Industry trade See Case Study 6-2 (P172)Take advantage of economies of scale in production to keep unit costs low and benefit consumers with more choicesIntra-industry trade mod
18、elChapter 520Interesting Considerations 1.Comparing with the H-O TheoryThe H-O theory predict that trade based on comparative advantage is likely to be larger when the difference in factor endowments among nations greaterIntra-industry trade is likely to be larger among industrial economies of simil
19、ar size and factor proportions.Difference 1:Basis for TradeChapter 521Interesting Considerations 1.Comparing with the H-O TheoryThe H-O model predicts that inter-industry trade will lower the return of the nations scarce factorWith intra-industry trade based on economies of scale it is possible for
20、all factors to gainDifference 2:Gains from TradeDifferent Attitude of Interest GroupsChapter 522Interesting Considerations 1.Comparing with the H-O TheoryIntra-industry trade is related to the sharp increase in international trade in parts or components of a productIt utilizes each nations comparati
21、ve advantage to minimize total costsRelationThe intra-industry trade model is an extension of the basis H-O model to modern production conditionsChapter 523Interesting Considerations 2. About Relative Commodity PricesWith differentiated products produced under economies of scale, pre-trade-relative
22、commodity prices may no longer accurately predict the pattern of trade.Large Country & Small CountryChapter 524ConclusionsnThe comparative advantage determines the pattern of inter-industry trade, while economies of scale in differentiated products give rise to intra-industry tradenA great deal of i
23、ntra-industry trade is in fact consistent with trade based on differences in factor endowments and comparative costsnInter-industry trade reflects natural comparative advantage while inter-industry trade reflects acquired comparative advantageChapter 5255.3.2 Measuring Intra-Industry TradenT = 1 (0，
24、1) X: The value of exports of a particular industry or commodity group M: The value of imports of a particular industry or commodity groupIntra-Industry trade IndexXMXMT=0 when there is no intra-industry tradeT=1 when the exports and imports of a good are equal (intra-industry trade is maximum)See C
25、ase Study 6-3 (P175)How to define the industry?Chapter 5265.3.3 Formal Model of Intra-Industry TradenWith Intra-Industry Trade Differentiated Products Economies of ScaleMonopolistic Competition Production and pricing under monopolistic competitionModelMarket OrganizationChapter 527Definition Monopol
26、istic Competitionn A form of market organization where there are many firms selling a differentiated product and entry into or exit from the industry is easyFIGURE 5-2 Production and Pricing Under Monopolistic Competition.(Fairly Elastic)AC is downward sloping because of the economies of scaleThe fi
27、rm reachs the best level of output where MR=MCThe firm breaks even at point A See P176Chapter 529 Conclusions Relationship between the two patterns of tradenWhen products are homogeneous, we have only inter-industry tradenWhen products are differentiated, we have both inter- and intra-industry trade
28、nThe more similar nations are in factors endowments and technology, the smaller is the importance of inter-relative to intra-industry trade5.3.4 Another Version of the Model P177FIGURE 5-3 Monopolistic Competition and Intra-Industry Trade.Negative relationship between N and P because of competitionP
29、ositive relationship between N and AC for a given level of industry outputE : Long-run equilibrium point where each firm breaks even in Autarky E : New long-run equilibrium point with international tradeAfter Trade (economies of Scale)Chapter 5315.4 Trade Based on Dynamic Technological Differences D
30、ynamic Extension of H-O ModelnTechnological Gap ModelnProduct Cycle ModelnIllustrationChapter 532Technological Gap Model M.V Posner (1961)n Opinion A great deal of the trade among industrialized countries is based on the introduction of new products and new production processes. These give the innov
31、ating firm and nation a temporary monopoly in the world market that is often based on patents and copyrights, which are granted to stimulate the flow of inventions.n Shortcomings No explanation of the size and the reason of the gaps, and how they are eliminated over time Emphasize the time lag in th
32、e imitation processChapter 533Product cycle mode Vernon(1966) n When a new product is introduced, it usually requires highly skilled labor to producen As the product matures and acquires mass acceptance, it becomes standardized and can then be produced by mass production techniques and less skilled
33、laborn Comparative advantage in the product shifts from the advanced nation that originally introduced it to less advanced nations, where labor is relatively cheapern This may be accompanied by foreign direct investments from the innovating nation to nations with cheaper labor.Chapter 534Conclusions
34、 for Product Cycle ModelnEmphasize the standardization processnThe most highly industrialized economies are expected to export non-standardized products embodying new and more advanced technologies and import products embodying old or less advanced technologies.nIt explains dynamic comparative advan
35、tage for new products and new production processes.Chapter 535 Illustration of the product Cycle ModelFIGURE 5-4 The Product Cycle Model.New-product phaseProduct-growth phaseProduct-maturity phase (Brand Competition)Product-decline phase (Price Competition)Case Study 6-4 (P182)5.5 Costs of Transport
36、ation, Environmental Standards and International TradenTransportation CostsnEnvironmental Standards Definition, Effect on Industry Location and International tradeChapter 5375.5.1 Transportation Costs nDefinition Transportation Costs include all the costs of transferring goods from one location (nat
37、ion) to anotherFreight chargesCosts of loading and unloadingWarehousing costsInsurance premiumsInterest charges while goods are in transit Non-traded Goods and Services Transport costs exceed price differences across nationsCase Study 6-5 (P184)Chapter 538FIGURE 6-5 Partial Equilibrium Analysis of T
38、ransport Costs.E : Equilibrium point for both nations in Autarky In absence of transport costs : PX =$8 in both nations, 60X are traded With transport costs of $2 per unit : PX1 =$7, PX2 =$9, 40X are tradedIllustration P185Chapter 539Transportation costs and the Location of Industry nResource-orient
39、ed industries : tend to locate near the source of the raw materials used by the industry Involving substantial weight losses in processingnMarket-oriented industries : locate near the markets for the products of the industry. Involving substantial weight gains in processingnFootloose industries : te
40、nd to have high value-to-weight ratios and to be highly mobile or footloose. Involving neither substantial weight gains nor losses in processingChapter 5405.5.2 Environmental Standards nEnvironmental Standards refer to the levels of air pollution, water pollution, thermal pollution, and pollutions r
41、esulting from garbage disposal that a nation allows.n Environmental Pollution is not fully reflected as social environmental costs in production A nation with lower environmental standards can use the environment as a resource endowment or a factor of production in attracting polluting firms and achieving a comparative advantage in polluting goods and services.How to deal with the contradiction between environment and development? Sustainable DevelopmentCase Study 6-7 (P188)Chapter 542ProblemsnP190nProblem 4,6,10,14
