chapter  6
15 Pages


WithW. Max Corden

In this chapter we review some recent developments in the theory of trade policy that are concerned with imperfect competition, strategic interactions as a result of oligopoly and economies of scale. All these developments have been described as ‘the new international economics’. In the view of some they represent major breakthroughs. One purpose of this chapter is to examine how new some of this is and how it relates to the ‘orthodox’ theory. We shall focus on one major aspect of these developments, namely ‘Brander-Spencer profit-shifting’ and its policy implications. This is expounded in some detail in the next three sections. The conclusion is that it relates closely to the existing framework of the orthodox theory of trade policy.