The New Trade Theory

1330 Words3 Pages

New Trade Theory The new trade theory began to emerge in the 1970s when a number of economists pointed out that the ability of firms to attain economies of scale might have important implications for international trade (Wickramasekera, Cronk & Hill 2013). This theory is based on two major concepts that are economies of scale and first-mover advantage. To elaborate: “Economies of scale are unit cost reductions associated with a large scale of output” as it is able to spread over the fixed costs over a large volume of quantity (Wickramasekera, Cronk & Hill 2013 p90). “First-mover advantages are the economic and strategic advantages that accrue to early entrants into an industry and the ability to capture scale economies ahead of later entrants” (Wickramasekera, Cronk & Hill 2013 p91). The new trade theory however, is not free from criticism. Although the theory has achieved great success academically, there is little to no effect in altering the trade policies. Unlike theories like the ‘rational expectations’ in macroeconomics, who not only found success academically, but also in policies. Kuttner (1991) suggested that the failure of the new trade theory in recommending any significant changes in the trade policies might be due to timidity of the theorists themselves, being afraid they might be branded as protectionists (Krugman 2007). Economies of Scale Australia’s pharmaceutical is a knowledge-based, technology-intensive industry that its aim is to develop and commercialise the outcomes of Australia’s long-term investment in medical research (AGDI 2014). It undertakes the development, production and supply of pharmaceutical products domestically and internationally (ALRC 2014). According to Australian Government Depar... ... middle of paper ... ... Australian Law Reform Commission (ALRC) 2014, Overview of the Biotechnology Sector Pharmaceutical Industry, viewed 15 May 2014, http://www.alrc.gov.au/publications/16-overview-biotechnology-sector/pharmaceutical-industry Australian Government National Commission of Audit (NCOA) 2014, The Pharmaceutical Benefits Scheme, viewed 20 May 2014, http://www.ncoa.gov.au/report/appendix-vol-1/9-4-pharmaceutical-benefits-scheme.html Hartung, A 2012, Top 20 R&D Spenders-Not Good Investments, Forbes, viewed 22 May 2014, http://www.forbes.com/sites/adamhartung/2012/11/05/top-20-rd-spenders-not-good-investments/ Hill, C, Cronk, T & Wickramasekera, R 2013, Global Business Today, McGraw-Hill Education, NSW, Australia Krugman, P 2007, Does the New Trade Theory Require a New Trade Policy? The World Economy, vol. 15, pp. 423-442. Kuttner, R 1991, The End of Laissez Faire, Kno

More about The New Trade Theory

Open Document