《14 Scale Economies》.pdf

Scale Economies, Product Differentiation, and the Pattern of Trade By PAUL KRUGMAN* For some time now there has been con- from trade even if the economies have iden- siderable skepticism about the ability of tical tastes, technology, and factor endow- comparative cost theory to explain the ac- ments. This basic model of trade is pre- tual pattern of international trade. Neither sented in Section I. It is closely related to a the extensive trade among the industrial model I have developed elsewhere; in this countries, nor the prevalence in this trade of paper a somewhat more restrictive formula- two-way exchanges of differentiated prod- tion of demand is used to make the analysis ucts, make much sense in terms of standard in later sections easier. theory. As a result, many people have con- The rest of the paper is concerned with cluded that a new framework for analyzing two extensions of the basic model. In Sec- trade is needed. The main elements of such tion II, I examine the effect of transporta- a framework-economies of scale, the pos- tion costs, and show that countries with sibility of product differentiation, and im- larger domestic markets will, other things perfect competition-have been discussed equal, have higher wage rates. Section III by such authors as Bela Balassa, Herbert then deals with home market effects on Grubel (1967,1970), and Irving Kravis, and trade patterns. It provides a formal justifica- have been in the air for many years. In tion for the commonly made argument that this paper I present a simp