Which hypothesis does the new new trade theory break the traditional trade theory?

The new and new trade theory breaks the two key assumptions of "perfect competition" and "constant return on scale" under the traditional international trade theory.

The theory of international trade lies in revealing the causes, structure and distribution of trade benefits of international trade. In different periods of economic development, the theory of international trade is constantly developing. After the Second World War, international trade showed new characteristics and patterns, and the traditional international trade theory could not or could not fully explain these phenomena, so the new trade theory came into being and developed.

The new trade theory mainly refers to a series of international trade theories to explain the new trade phenomenon after the end of World War II, especially since the 1980s. Its main representatives include Lucie Decosse, Krugman, Helpmann, Spencer and Brand. One of the most important representatives is Krugman.

Traditional trade theory is the product of classical economics, which is based on some strict theoretical assumptions, including: perfect competition in the market, constant or decreasing returns to scale, and similar demand preferences in various countries.

The model analyzes two countries, two commodities and two elements, namely the 2×2×2 model. According to the new trade theory, it is these premises that do not conform to today's social and economic life, which makes the traditional trade theory unable to explain the reality.

international trade

The so-called intra-industry trade is a concept opposite to the traditional international trade theory, which refers to the trade between products in the same industry, that is, a country imports and exports similar products.

The appearance of these phenomena challenges the traditional international trade theory. Part of the trade, which accounts for a considerable proportion of the world trade volume, does not occur because of the differences in comparative costs or resource endowments.