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  • Essay / Classical Theory of International Trade - 1130

    Recently, most of the international trade was between developed countries and the goods traded were only partially diversified and hence we can talk about like-like trade or also intra trade -sectoral, for example similar. cars of different brands. What happened was that companies that were previously very similar and had virtually no market power grew in size and also in market power if they had outperformed other companies. In other words, a few successful companies were able to become oligopolies and fix prices. Under the assumption of oligopolistic competition (or the more restrictive assumption of monopolistic competition that all oligopolistic firms are the same), the new trade theory was introduced. This theory well described the reasoning behind intra-industrial international trade which accounted for the majority of international trade after World War II until around 1990. The importance of geographic location, transportation costs and mobility of production factors has been taken into account and described the clustering effect as a clustering effect. self-forced process due to economies of scale and positive externalities, but sometimes also due to historical accident. Another important role was the formation of trade unions, such as the European Common Market, which removed many trade barriers and improved international trade. Unions, but also falling transport costs, mainly due to technological progress, have once again made it possible to access new markets and many multinational companies have benefited from this. There are many reasons why such businesses were successful: enough capital for international expansion, extraordinary products, economies of scale, oligopolistic power… Trade between rich countries and similar goods during this period was consistent with Gravity's suggestions.