“Implication of new trade theory: New trade theory has important implications. the theory suggests that nations may benefit from trade even when they do not differ in resource endowments or technology. Trade allows a nation to specialize in the production of certain products, attaining economies of scale and lowering the costs of producing those products, while buying products that it does not produce from other nations that specialize in the production of those products. By this mechanism, the variety of products available to consumers in each nation is increased, and the average costs of those products should fall, as should their price, freeing resources to produce other goods and services. The theory also suggests that a country may predominate in the export of a good simply because it was lucky enough to have one or more firms among the first to produce that goods. Because they are able to gain economies of scale, the first movers in an industry may get a lock on the world market that discourage subsequent entry. First movers, ability to benefit from increasing returns creates a barrier to entry. In the commercial aircraft industry, the fact that Boeing and Airbus are already in the industry and have the benefits of economies of scale discourages new entries and reinforces the dominance of America and Europe in the trade of midsized and large jet aircraft. This dominance is further reinforced because global demand may not be sufficient to profitably support another producer of midsized and large jet aircraft in the industry. So although Japanese firms might be able to compete in the market, they have decided not to enter the industry but to ally themselves as major subcontractors with primary producers.”
Posted on: Sun, 23 Jun 2013 17:29:33 +0000
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