Factor Endowments and Trade with Increasing Returns Versus Constant Returns to Scale

A general equilibrium model of trade with increasing returns to scale is developed for the purpose of analyzing how the results of factor-proportions trade theory are affected by the existence of scale economies. Comparative statistics effects with scale economies are derived as explicit funstions of standard constant returns mappings such as the Rybczynski matrix. Issues addressed include (A) the direction of trade, (B) international factor-price differences, (C) factor mobility and the volume of trade, and (D) the welfare effects of endowment changes