What is the New Trade Theory on Economics?

It asserts dissatisfaction with the external or exogenous treatment of factors of production-populations growth, savings rates, human capital and technological change- in traditional neoclassical growth theory discussed above has been addressed by a growing body of work on endogenous growth models. Both models struggle to convince on their central agreement that returns may be constant and increasing rather than diminishing.  New trade theory central to geographical economics emphasizes how regional industrial specialization and concentrations can influence and, in turn, be shaped by trade.  The divergence of output and income between centers and peripheries and multiple possible equilibrium positions are likely rather than the long-run convergence proposed by orthodox neoclassical economics.  Aside from that, it focuses on the role of localities and regions in shaping the trading performance of industries within particular nations. The model critiques existing neo-classical of the variety discussed above approaches but relies upon its core assumptions of methodological individualism, perfect information, economically rational individuals, profit maximising firms and exchanges.

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