New trade theory stresses that in some cases countries specialize in the production and export of particular products not because of underlying differences in factor endowments,but because in certain industries the world market can only support a limited number of firms.

Question

Quizplus · Accepted Answer

This is the basic principle of new trade theory. It states that economies of scale and network externalities can create a situation where a limited number of firms can dominate a particular industry, leading to countries specializing in the production of those products regardless of their factor endowments.

New Trade Theory Stresses That in Some Cases Countries Specialize