A note on ‘strategic’ trade theory and the South

Abstract

This note discusses the relevance of strategic trade theories for Southern economies. These theories explore the implications for trade of games‐playing by large firms in oligopolistic industries and justify government support for domestic firms. The paper argues that — in contrast to other recent theories emphasizing technology gaps, economies of scale and learning — the strategic theories have little relevance for Third World governments. This is partly because restrictive assumptions make the policy conclusions widely inapplicable, and partly because the type of industries involved are typically non‐existent or inappropriate for Third World economies.

International Trade Theory and Policy: A Review of the Literature

“…The agenda the NTT theorists had set for themselves clearly excluded situations where "…changes can happen in resource endowments, technological possibilities, or consumer preferences" (Bhattacharjea 2004; see also Ruttan 1998 andStewart 1991). None of these theories (old/new) paid much attention to questions of changing income distribution with free/restricted trade.…”

International Trade Theory and Policy: What is Left of the Free Trade Paradigm?

“…They view 'change by comparing static equilibrium states, rather than as a process occurring in irreversible historical time' (Bhattacharjea, 2004: 121). The agenda the NTT theorists had set for themselves clearly excluded situations in which changes can happen in resource endowments, technological possibilities or consumer preferences (see Ruttan, 1998;Stewart, 1991). Furthermore, neither set of theories paid much attention to issues of changing income distribution, as is usual with free or even restricted trade.…”

New trade theory versus old trade policy: a continuing enigma

“…Whilst some strategic models with oligopolistic players dominating world markets may be of limited relevance to low-income developing countries (Stewart 1991), arguments for intervention based on scale economies and imperfect competition are widespread in developing countries, rendering these theories especially relevant for them . Empirical evidence indicates that imperfect competition is indeed rampant (Lee 1992), although the evidence on scale economies is much more limited.…”