Abstract

Trade theory predicts that increasing returns to scale and factor proportions are the main determinants of international trade. Yet, it does not give a precise answer on the relative importance of each of these causes of world trade, and on their joint interaction in determining interindustry specialisation. In this paper we formulate a model which allows us to integrate in a very simple way the two main causes of international specialisation. We then use this model as a benchmark for quantifying empirically the relative importance of scale economies and factor proportions in interindustry trade. We find that both have a non negligible effect in the manufacturing sectors. In particular, factor proportions are the main source of international trade in the sectors whose factor intensities are extreme. On the contrary, increasing returns turn out to be the main determinant of world trade in the sectors characterised by intermediate factor intensities.