Scale Economies and International Trade in a Rapidly Growing Region

Scale Economies and International Trade in a Rapidly Growing Region

Scale is universally acknowledged as important in the determination of national comparative advantage. Paradoxically, attempts to associate empirical measures of scale economies and international trade volume have proved largely inconclusive, and often have been found to sport the “wrong” sign. We examine the trade-scale nexus in the context of East Asian NICs and “Next-Tier” NICs whose economies and exports have grown especially rapidly since the mid-1960s. In a cross section context we replicate the negative correlations typically found in the literature. By combining time section and cross section analyses we demonstrate significant positive correlations in a dynamic context, finding that the smaller the country the greater the scale economy gains for any given population increase. (JEL Classification: F12)