economic of scale (1)

some alternative trade theories are based upon the existence of scale.in these models ,the economies of scale are external economics pertaining to the industry rather than the firm .In these industries ,as output increases firms experience cost reductions per unit of output because,for example ,the industry growth is attracting a pool of qualified labor. In two-country world where the countries have identical PPFs and demand conditions ,there is normally no incentive to trade. if the two industries experience economies of scale , the model generates a potentially new reason for trade .in spite of the fact that both countries begin with identical autarky positions , a shock that results in each country moving to specialization in different goods and trading would lead both countries to experience gains from trade.See Appendix A for The complete development of this model .