New trade theory

Krugman states that he originally learned about the effects of monopolistic competition on trade from Robert Solow, but that theories of International economics a generation earlier had completely ignored returns to scale.

[3][4] NNTT stresses the importance of firms rather than sectors in understanding the challenges and the opportunities countries face in the age of globalization.

One of the typical explanations, given by Paul Krugman, depends on the assumption that all firms are symmetrical, meaning that they all have the same production coefficients.

Shiozawa, based on a much more general model, succeeded in giving a new explanation on why the traded volume increases for intermediates goods when the transport cost decreases.

In many ways, the available data have been too limited to produce a reliable test of the hypothesis, which doesn't require arbitrary judgements from the researchers.

[16] The value of protecting "infant industries" has been defended at least since the 18th century; for example, Alexander Hamilton proposed in 1791 that this be the basis for US trade policy.

The models developed predicted the national specialization-by-industry observed in the industrial world (movies in Hollywood, watches in Switzerland, etc.).

Some economists, such as Ha-Joon Chang, had argued that protectionist policies had facilitated the development of the Japanese auto industries in the 1950s, when quotas and regulations prevented import competition.

Japanese companies were encouraged to import foreign production technology but were required to produce 90% of parts domestically within five years.

Japanese consumers suffered in the short term by being unable to buy superior vehicles produced by the world market, but eventually gained by having a local industry that could out-compete their international rivals.