New Trade Theory : International Patterns Of Trade

2016 Words9 Pages
During the 16th mid-century Mercantilism concept was followed. This concept says (one country should accumulate wealth in form of gold) that maximize exports through subsidies, minimize imports through tariffs and quotas. According to this concept any import is to be avoided. The term “NEW TRADE THEORY” describes relations among natural country returns, government actions and industry features that enable such exchanges to occur. As a result output increases with knowledge, an industry’s capacity to understand the economies of scale rises and unit cost decreases. Because of such economies of scale world demand chains only a few firms in some industries. New Trade Theory recommends that a serious issue in defining international…show more content…
Finally trade has become more concentrated among the industrialised nations. Helpman and Krugman pointed that the conventional trade models like Heckscher-ohlin model cannot explain these facts. “These……..empirical weakness of conventional trade theory……….becomes easy only if the economies of scale and imperfect competition are brought into the analysis” said by them. Paul Krugman gave the example that one could say that the conventional theory views the world as taking place in goods like Wheat; In New Trade Theory could be seen in goods like aircraft. From the year 1950-1990, the ratio of trade to gross domestic has enlarged by 86.1%. In 1961 the facts that incorporated by the model was , the world was very poor than in 1990 and the consumption of manufactured goods and the distribution of income was much more than in 1990.This new theory generalises ,fluctuations in relative prices to have bigger effect on trade volumes. The deviations in the level of income among industrialised countries, accounts the observed expansion of trade relative to income. United States of America contributed much of world’s income and consumption during post world war period. Some applications of this theory Competitors merge because of “First –mover advantage”, in this role of government becomes significant. It generates government intervention and strategic trade policy.

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