Standard trade theory is based on perfect competition, with constant returns to scale at the level of the individual firm and constant or increasing cost of expanding production at the level of the industry. Comparative advantage predicts that countries will trade with other countries that are different (the source of the comparative cost differences) and that each country will export some products and import other, quite different, products. While much international trade conforms to these patterns, a substantial amount does not. Most obviously, industrialized countries trade a lot with one another, and much of their trade each is exporting and importing similar products.

Develop a detailed analyzing intra-industry international trade.

• Introduction
• Economies of scale
• Monopolistic competition and the gravity model of trade
• Global oligopoly (strategic trade policy)
• Agglomeration economies (external economies of scale)
• Conclusions
• References