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Comparative Advantage and Economies of Scale: When Does Ricardo Dominate Smith?

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  • Nordas, Hildegunn Kyvik

Abstract

This paper develops a two-country, two-sector (X and Y) model of international trade. One country has comparative advantage in the increasing returns Y-sector. The direction of trade depends on the relative size of the countries and the relative strength of economies of scale and comparative advantage. An equilibrium where the smallest country exports the Y-good and the largest country loses from trade is possible. A dynamic equilibrium where the X-sector is subject to learning by doing locks in the initial pattern of specialization. Yet, there may be few welfare gains from protecting the X-sector in the small country. Copyright 2000 by Blackwell Publishing Ltd.

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  • Nordas, Hildegunn Kyvik, 2000. "Comparative Advantage and Economies of Scale: When Does Ricardo Dominate Smith?," Review of International Economics, Wiley Blackwell, vol. 8(4), pages 667-680, November.
    • Handle: RePEc:bla:reviec:v:8:y:2000:i:4:p:667-80
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    Cited by:

    1. Kwok Tong Soo, 2014. "The gains from external scale economies and comparative advantage," Economics Bulletin, AccessEcon, vol. 34(1), pages 84-88.

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