NEW TRADE THEORY 1
New Trade Theory
Kayanna Branch
School of Business, Liberty University
October 11th, 2020
NEW TRADE THEORY 2
Key Term and Why You Are Interested in It
The key term is New Trade Theory. New trade theory refers to the suggestion that
patterns of trade and the substantial economies of scale comprise a critical part of
understanding the international business and industries (Satterlee, 2009 p.235). The main
interest in studying the new trade theory is to advance knowledge level regarding
conducting business at a local level and then expanding to global scales. The new trade
theory provides critical insights into how my career can take shape in developing
strategies to enter new market and utilize economies of scale to win competitive
advantages. The theory is also important when exploring various business ideas that align
with globalization.
Explanation of the Key Term
Understanding the term requires a critical comprehension of the concepts of
economies of scale and network effects. Different industries within the economy at
various levels operate in unique ways, but economies of scale generally refer to the size.
The new trade theory shows that a combination of economies of scale and network
effects has more significance in analyzing businesses than the traditional theory of
comparative advantage (Satterlee, 2009, p. 238). The new trade theory also involves
understanding the dynamics of starting a business and taking advantage as an early
entrant in the industry. The first firms in an industry retain the advantage of growing
more than new entrants due to economies of scale.
NEW TRADE THEORY 3
Major Article Summary
Yamarik provides a comprehensive approach to the application of the new trade
theory for undergraduate international economics (2018). The various automobile
manufacturers from the U.S and Japan are analyzed in terms of cost of their cars and
average cost schedules. The author has provided an experimental approach starting with
autarky in 1960s to the Great Recession of 2008. The main approach involves choosing
prices in the market and quantity to facilitate calculation of each producer’s market share,
average cost and profits (Satterlee, 2009, p.240). The average cost of production for each
company affects the ability to penetrate its specific market target and also profitability.
Yamarik (2018) offers an opportunity to vary the market prices and sizes for the
experiment to show the gains of intra-industry trade and the effects of economic recession
on businesses. The businesses that entered the automobile manufacturing industry earlier
have better chances of surviving economic recessions and turbulences than the new
entrants due to economies of scale.
New trade theory provides important details on the advantages of being early
entrants in an industry. The firms that get into a market early gain the advantage of
establishing dominance in the industry and new entrants are often disadvantaged when
they compete with incumbent firms. Economies of scale apply in the expansion of
businesses in global scales because production is done in large volumes and the average
costs reduces significantly (Satterlee, 2009, p. 235). Global economies that are mainly
dominated by large economies of scale limit the extent of competition and there is a
general development of monopolistic competition. The example of automobile industry
shows that large companies have higher chances of surviving bad economic times than
NEW TRADE THEORY 4
the smaller ones. The new trade theory provides ideas that are applicable in career
development and generation of new ideas to grow businesses.
Discussion
Yamarik (2018) aligns with the topic of new trade theory because the various
concepts of international business operations and competition are addressed. The work
shows the application of the new trade theory in the automobile industry as there are both
small and large companies that compete to serve different market segments. The work
also relates to the new trade theory by showing how monopolistic competition involves
firms branding their products, quality, and prices of different goods. The new trade theory
also shows the factors that create a situation of a country importing and exporting clothes
at the same time. Based on the explanations given by Yamarik (2018), the most lucrative
industries are still established in the capital-intensive countries because they were first
started there. Yamarik (2018) is an appropriate source for the new trade theory.
The new trade theory applies effectively in regard to the development of lucrative
industries in the developed economies. The poorer countries might never reach the state
of creating some industries due to their disadvantaged positions relative to the more
capital-intensive countries. Yamarik (2018) relates with the other articles in addressing
the dynamics of the new trade theory because international business operations are linked
to the local economies. According to Ciuriak et al, (2015) conomists apply different
concepts to evaluate new market and make decisions that influence the establishment and
development of industries. The article also relates with the others in understanding the
transport industry and also developing proper understanding around multilateral business
operations (Hübler, 2016). Ossa (2017) also provides a connection with the content of
NEW TRADE THEORY 5
Yamarik (2018) by addressing international business in relation to the new trade theory.
Biblical Integration
There is a competitive advantage for any company that reaches industrial maturity
because there are economies of scale in production and marketing. Businesses that start
early have greater chances of success as stated in Psalms 37: 23- 24. “The LORD makes
firm the steps of the one who delights in him; though he may stumble, he will not fall, for
the LORD upholds him with his hand.” The large firms create direct impacts on the
determination of prices and availability of their products.
NEW TRADE THEORY 6
References
Bible, H. (2015). New american standard bible. Grand Rapids: World.
Ciuriak, D., Lapham, B., Wolfe, R., Collins‐Williams, T., & Curtis, J. (2015). Firms in
international trade: Trade policy implications of the new new trade theory. Global
Policy, 6(2), 130-140. doi:10.1111/1758-5899.12183
Hübler, M. (2016). A new trade network theory: What economists can learn from
engineers. Economic Modelling, 55, 115-126.
doi:10.1016/j.econmod.2016.02.009
Ossa, R. (2017). A “New trade” theory of GATT/WTO negotiations. The Journal of
Political Economy, 119(1), 122-152. doi:10.1086/659371
Setterlee, B, C, (2009). Cross Border Commerce.
Tsubuku, M. (2016). Endogenous transport costs and firm agglomeration in new trade
theory. Papers in Regional Science, 95(2), 353-362. doi:10.1111/pirs.12126
Yamarik, S. (2018). The automobile industry and new trade theory: A classroom
experiment. The Journal of Economic Education, 49(3), 252-259.
doi:10.1080/00220485.2018.1464982
Powered by TCPDF (www.tcpdf.org)
