Fundamental Trade Theorems under External Economies of Scale

This paper examines the validity of the ̄ve fundamental theorems in the positive theory of international trade in a basic model of external economies of scale. It shows that some of these theorems are valid in more cases than the literature suggests. In particular, if global changes under the speci ̄ed adjustment mechanism are allowed, the Rybczynski and Stolper-Samuelson Theorems are always valid, whether or not a production equilibrium is stable. Modi ̄ed forms of the Law of Comparative Advantage and the Heckscher-Ohlin Theorem in the presence of externality are derived. Conditions under which the Factor Price Equalization Theorem is valid will be derived. Thanks are due to Koji Shimomura for helpful comments. Any remaining errors and shortcomings are mine.