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MENTAL MODEL · M3229

New Trade Theory

New Trade Theory
BusinessHigh supportEconomics
Included
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Version 1.0.0 · Updated 2026-07-30

CORE DEFINITION

Developed by Paul Krugman and others, this theory introduces economies of scale and product differentiation to explain international trade. It points out that even if there are no comparative advantage differences between countries, economies of scale can prompt countries to specialize in producing different varieties of products and engage in trade.

SCAFFOLDING EFFECT

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Explanation of intra-industry trade. It explains why there is substantial trade between similar countries (intra-industry trade). In corporate strategy, it helps understand how to build competitive advantage in international markets through product differentiation and economies of scale.

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Krugman and others explain intra-industry trade with economies of scale and imperfect competition: even if factor endowments are similar, scale and product differentiation can drive trade. It breaks through the comparative advantage framework.

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Source support: Explicit

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    en.wikipedia.orghttps://en.wikipedia.org/wiki/New_trade_theoryZH · Explicit
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