The geographic-based rationale for international trade is that firms seeking to take advantage of external economies and agglomeration naturally exchange products across borders, thereby generating international trade.

Question

Quizplus · Accepted Answer

This statement is true. External economies refer to the benefits accruing to firms due to factors that are not within their direct control, such as the presence of related industries, skilled labor, and specialized infrastructure. Agglomeration refers to the clustering of firms or industries in a particular geographic location, which generates positive forward and backward linkages between the firms. These factors create a conducive environment for international trade as firms seek to access markets with complementary factors of production and take advantage of the gains from specialization and trade.

The Geographic-Based Rationale for International Trade Is That Firms Seeking