Page 227 - Global Political Economy_Understanding The International Economic Order

CHA PTER E IGHT
with cumulative experience and is determined to a considerable de-
gree by the initial pattern ofspecialization.
These important considerations that “international comparative
advantage in the production ofand sale ofhigh-technology goods
.... must be struggled for and earned through superior technological
innovativeness” has significantly intensified what F. M. Scherer has
labeled “international high-technological competition.” 28 The drive
for technological superiority has notably increased the receptivity of
governments to the “new trade theory.”
New Trade Theory
The most important and certainly the most controversial development
challenging the conventional theory ofinternational trade is the “new
trade theory,” more commonly known as “strategic trade theory”
(STT). Therefore, I repeat here much of my earlier discussion of stra-
tegic trade theory. Strategic trade theory is the culmination ofearlier
challenges to conventional trade theory because it incorporates a
growing appreciation ofimperfect competition, economies ofscale,
economies ofscope, learning by doing, the importance ofR & D,
and the role oftechnological spillovers. STT is significant because it
challenges the theoretical foundations of the economics profession’s
unequivocal commitment to free trade. In fact, STT originated with
the development ofnew analytical tools and growing dissatisfaction
with conventional trade theory and its inability to explain the increas-
ing trade problems ofthe United States, especially with respect to
29
Japan in the 1980s. The application to trade theory ofnovel meth-
ods associated with important theoretical advances in the field ofin-
dustrial organization provided the means to develop an alternative to
the H-O model. Mathematical models ofimperfect competition and
game theoretic models were first incorporated into trade theory in
the early 1980s by James Brander and Barbara Spencer (1983), two
theorists ofindustrial organization. 30 Before I consider the theory,
however, I will discuss oligopolistic competition briefly.

28
F. M. Scherer, International High-Technology Competition (Cambridge: Harvard
University Press, 1992), 5.
29
David B. Yoffie and Benjamin Gomes-Casseres, International Trade and Competi-
tion: Cases and Notes in Strategy and Management, 2nd ed. (New York: McGraw-
Hill, 1994), 5–17.
30
James A. Brander and Barbara J. Spencer, “International R & D Rivalry and In-
dustrial Strategy,” Review of Economic Studies 50 (1983): 707–22.
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