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Explaining the Volume of Trade: An Eclectic Approach

In: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models

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  • JAMES R. MARKUSEN

Abstract

Divide the world into a capital-abundant North and a labor-abundant South. Subdivide the North into two identical regions, East and West. Modern trade theory predicts intra-industry trade in differentiated manufactured goods between East and West, and traditional interindustry trade based on factor endowments between North and South. The model I develop explains both the volume and the direction of trade by combining nonhomothetic preferences with scale economies and differences in endowments.

Suggested Citation

  • James R. Markusen, 2021. "Explaining the Volume of Trade: An Eclectic Approach," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 9, pages 177-186, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811222962_0009
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    Keywords

    Multinational Firms; Horizontal Multinationals; Vertical Multinationals; Internalization; Vertical Integration; Outsourcing; Foreign Affiliates; Per-Capita Income; Non-homothetic Preferences; Income Elasticity of Demand; Missing Trade Puzzle; Skill Premium Puzzle; Pro-competitive Gains From Trade; Complements; Externalities;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F00 - International Economics - - General - - - General
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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