Fragmentation, Imperfect Competition and Heterogeneous Firms

The earlier chapters utilize traditional trade theory models of perfect competition, constant costs, homogeneous goods, services and factors of production and an emphasis on trade at the sectoral or industry level. It is, of course, well-known that much of international trade takes place under conditions of imperfect competition, distorted markets and variable returns to scale, as well as heterogeneity of goods, services and factors of production. When these conditions prevail, the so-called new trade theory with its focus on imperfect competition, economies of scale, and product diversification provides a more appropriate analytical approach…