OUTPUT SET, CONVEXITY, SPECIALIZATION AND TRADE IN THE ABSENCE OF COMPARATIVE ADVANTAGES
Classical trade theory is based on exogenous comparative advantage. The existence of equilibrium is derived under the assumption that the output sets are (weakly) convex. In general, however, in the presence of transaction costs or in the case of production techniques with increasing returns to scale, this convexity requirement is no longer satisfied, and the comparative advantage may also disappear.Pioneered by Arrow, Ng and Yang, some researches have been done on specialization and trade in the absence of comparative advantages, and the basic assumption is that the agents have production techniques with increasing returns to scale.In this paper it is pointed out that, with more than one factor of production, increasing returns to scale is no longer sufficient for promoting specialization and trade. Based on the property of the output set and the PPF, the author proposes some new criteria as sufficient conditions for the promotion of specialization and trade.
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