External Economies in the International Trade Theory: A Survey

The paper surveys the international trade literature on intraindustrial and interindustrial production externalities. It places particular emphasis upon the literature on variable returns to scale (VRS) developed along the Kemp line that the externalities are output–generated, and the economies of scale are external (internal) to individual firms (industry). The discussion touches upon the literature examining the implications of VRS for fundamental trade theorems, trade policies, economic growth, and welfare. The paper extends the survey to writings on the Meade–type interindustrial production externalities.