Increasing Returns, Dynamics Comparative Advantage And Intra-industry Trade

The most fundamental issue in international trade theories is to explain the determination of trade patterns and trade volume. The great breakthrough in trade theories since the emergence of DS model is the incorporation of increasing return and incomplete competition side by side into the theoretical framework of trade. DS model serves not simply the new basis for the development of international trade theories, but also facilitates the development of new growth theories (the second generation). New growth theories and new trade theories actually share the same origin, both of which combine increasing return and the market structure of monopolistic competition into the model. In other words, new trade theories and new growth theories are both originated and cultivated out of the attempt to deal with the conflicting aspect between increasing return and competitive equilibrium within the neoclassic framework. Increasing return together with comparative advantage is a dynamic economic phenomenon, whereas the new trade theory applies to its analysis the static analytical method dominant in neoclassic trade theories. Serious modeling and general equilibrium analysis of dynamic comparative advantage made no progress until the full-fledging of new growth theories. The latter, characteristic of its dynamic analysis, provides analytical tools and methods for the dynamic modeling of new trade theories. Research in new trade theories needs to be advanced in three directions: the first direction is the mechanism in which intra-industry trade might affect endogenous growth; in other words, the extension of endogenous economic growth theory into international (intra-industry) trade; the second is to analyze the role of intra-industry trade in the distribution of income; the third, to explain trade patterns and trade volume from the perspective of multinational companies and analyze the determination of intra-industry and intra-corporation trade patterns and that of trade volume. The dissertation which centers around the three major issues, combines the new trade theories and new growth theories and elucidates with dynamical analytical method the impact of increasing return on the formation and evolution of dynamic comparative advantage as well as the evolution of intra-industry trade patterns with dynamic comparative advantage. The whole analysis will be carried out in four steps in accordance with the sources of increasing return.In the first step (Chapter two), we illustrate the impact of external effect on the formation and evolution of dynamic comparative advantage from the perspective of the former, and the evolution of intra-industry trade patterns with dynamic comparative advantage brought about by the external effect. Based on two factors, skilled labor and unskilled labor, this part joins together external effect, increasing return and dynamic comparative advantage, and correspondingly illustrates thedilemma facing less developed countries as for whether international division of labor and trade should be conducted according to initial comparative advantage or the potential comparative advantage, and further analyzes the validity of Rybczynski Theorem and Stolper-Samuelson Theorem in traditional trade theories with external increasing returns to scale and the issue whether welfare in trade can be promoted under these circumstances. The impact of governmental interference under external effect upon dynamic comparative advantage is also analyzed.We follow the second step (Chapter three) to illustrate the impact of human capital effect on the formation and evolution of dynamic comparative advantage and the corresponding evolution of intra-industry trade patterns with dynamic comparative advantage resulted from the above-mentioned effect. Human capital embraces both external effect and internal effect, so we analyze the mechanism in which the two effects in combination might affect dynamic comparative advantage, intra-industry trade and economic growth, and thus clarify the impact of the competitive effect formed in the process of intra-industry trade and that of the external effect of human capital upon human capital allocation among the finished product production, capital goods sector and R&D sector, as well as their impact on endogenous economic growth. With respect to the channel for the enhancement or accumulation of human capital, education is one important alternative apart from learning by doing. This chapter discusses the interrelated mechanism between education, international trade and dynamic comparative advantage.With the third step (Chapter four) we clarify the impact of innovation upon the formation and evolution of dynamic comparative advantage and the evolution of intra-industry trade patterns with dynamic comparative advantage engendered by innovation. The human capital effect finds more evident representation in innovation sectors. This reveals not only the fact that human capital itself is the basic factor for innovation activities, but that innovation activities in open economies are always closely linked to the evolution of product cycle. Within the framework of horizontal innovation and North-south trade, close theoretical link can be found between variation in product types in the South and the North, North-south trade and the product cycle. Within the framework of vertical innovation and North-south trade, we analyze the relatedness between innovation in the North and imitation in the South, and further extend the theory of North-south trade and product cycle proposed by Grossman and Helpman. In an open economy, the variation in relative wage between skilled and unskilled labor exerts significant influence on the innovation and imitation behavior, North-south trade and product cycle. Consequently, at the end of the third step, we incorporate skill-biased technological change and intra-industry trade into one comprehensive framework and analyze the principle governing the change in relative wage of the skilled laborfactor.With the fourth step (Chapter five), we discuss from the perspective of transaction efficiency, the impact of transaction efficiency improvement on the formation and evolution of dynamic comparative advantage, and the evolution of intra-industry and intra-corporation trade pattern and of the trade volume under the light of the above-mentioned dynamic comparative advantage. International trade is an important means to facilitate the increasing return to scale of differentiated products. The availability of the means relies on the level of transaction efficiency. The dilemma between increase in product types and transaction cost brings about the occurrence of intra-corporation trade. On the other, the expansion of scale of intra-corporation trade results in the boundary of intra-corporation trade.