Economics · International Trade Theories
Which of the following represents the most significant theoretical departure that Krugman's New Trade Theory makes from classical and neoclassical trade theory (Ricardo and H-O)?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Krugman proved that free trade always worsens income distribution in all participating countries
- 2Krugman showed that trade can occur between identical countries in the absence of comparative advantage or factor endowment differences, driven instead by economies of scale and product differentiation✓
- 3Krugman demonstrated that trade can be beneficial only for developing countries and not for developed ones
- 4Krugman showed that comparative advantage is determined by climate rather than technology or factor endowments
Correct answer
Krugman showed that trade can occur between identical countries in the absence of comparative advantage or factor endowment differences, driven instead by economies of scale and product differentiation
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