Market Structure and Foreign Trade: Increasing Returns, Imperfect Competition, and the International Economy

by Paul Krugman

Market Structure and Foreign Trade presents a coherent theory of trade in the presence of market structures other than perfect competition. The theory it develops explains trade patterns, especially of industrial countries, and provides an integration between trade and the role of multinational enterprises.

Relating current theoretical work to the main body of trade theory, Helpman and Krugman review and restate known results and also offer entirely new material on contestable markets, oligopolies, welfare, and multinational corporations, and new insights on external economies, intermediate inputs, and trade composition.

Genres: Economics

283 pages, Paperback

First published April 1, 1985

About the author

Paul Robin Krugman is an American economist, liberal columnist and author. He is Professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs, Princeton University, Centenary Professor at the London School of Economics, and an op-ed columnist for The New York Times. In 2008, Krugman won the Nobel Memorial Prize in Economics for his contributions to New Trade Theory and New Economic Geography.

Reviews

[Marks54 · Rating 4 out of 5]

This is a collection of early Paul Krugman papers written with Elhanan Helpman. They came to my attention while I was reading his most recent book of columns - “Arguing with Zombies”. I have always liked his earlier work on economic geography and this volume of international trade theory fits in nicely with that work. The idea is to develop economic theory regarding economic trade so that it can accommodate a variety of newer theoretical details that make the resulting arguments more relevant to the real behavior of national economies and international trade. The idea here is to start with a popular and widely used economic model of international trade - the Heckscher-Ohlin model - and then build upon it to add consideration of such factors as increasing returns, imperfect competition, and differentiated products to understand how the resulting models of international trade change. This leads to a consideration of the role of multinational firms in international trade, especially in their provision of intangibles (“headquarters services”) and more complex international structures and multi-product arrangements making use of transaction cost management.

This is an important set of papers for understanding the economic basis of the role of multinational firms in international trade. The papers are highly focused and require some attention to work through, but doing so is worthwhile. The political dimensions of trade, tariffs, and the like are not considered by intention but that is no criticism of what these papers show. These are more focused treatments, such as one might find in economics journals, and those seeking more general treatments might be disappointed.