External economies

Abstract

As we saw in Chap. 3, already in 1776 Adam Smith pointed out the importance of increasing returns to scale for international trade in his The Wealth of Nations. It is rather recent, however, that the role of increasing returns has begun to be discussed seriously in the modern theory of international trade. Since the assumption of perfect competition, which has been widely made, is not consistent with the so-called internal economies, Marshallian external economies have been considered by, e.g., Mathews (1949), Melvin (1969), and Kemp & Negishi (1970).