1. The theory of external economies
L. Agnerová, L. Szanyiová

2. Economies of scale that occur at the level of the industry instead of the firm are called external economies.
There are three main reasons why a cluster of firms may be more efficient than an individual firm in isolation:
Specialized suppliers
Labor market pooling
Knowledge spillovers

3. Specialized Suppliers
In many industries, the production of goods and services and the development of new products requires the use of specialized equipment or support services.
An individual company does not provide a large enough market for these services to keep the suppliers in business.

4. Labor Market Pooling
A cluster of firms can create a pooled market for workers with highly specialized skills.
It is an advantage for:
Producers – They are less likely to suffer from labor shortages.
Workers – They are less likely to become unemployed.

5. Knowledge Spillovers
• Knowledge is one of the important input factors in highly innovative industries.
• The specialized knowledge that is crucial to success in innovative industries comes from:
Research and development efforts
Reverse engineering
Informal exchange of information and ideas

6. External economies and market equilibrium

7. External Economies and International Trade
Prior to international trade, equilibrium prices and output for each country would be at the point where the domestic supply curve intersects the domestic demand curve.
Suppose Chinese button prices in the absence of trade would be lower than U.S. button prices.

8. International Trade
If you walk into a supermarket and are able to buy South American bananas, Brazilian coffee and a bottle of South African wine, you are experiencing the effects of international trade. International trade allows us to expand our markets for both goods and services that otherwise may not have been available to us.

9. External Economies Before Trade

10. Countries open up the potential for trade in buttons
The Chinese button industry will expand, while the U.S. button industry will contract.
This process feeds on itself: As the Chinese industry’s output rises, its costs will fall further; as the U.S. industry’s output falls, its costs will rise.
In the end, all button production will be in China

11. Trade and Prices
Chinese button prices were lower than U.S. button prices before trade.
Because China’s supply curve is forward-falling, increased production as a result of trade leads to a button price that is lower than the price before trade.

12. Dynamic Increasing Returns
Dynamic increasing returns to scale could arise if the cost of production depends on the accumulation of knowledge and experience, which depend on the production process over time.

13. Dynamic Increasing Returns
Learning curve
It relates unit cost to cumulative output.
It is downward sloping because of the effect of the experience gained though production on costs

14. Dumping
In international trade, the export by a country or company of a product at a price that is lower in the foreign market than the price charged in the domestic market.

15. European anti-dumping policy
The European Commission is responsible for investigating allegations of dumping by exporting producers in non-EU countries.
It usually opens an investigation after receiving a complaint from the Community producers of the product concerned, but it can also do so on its own initiative.
Specifically, the investigation must show that:

16. A product is considered
as being dumped if its export
price to the EU is less
than its normal value.
In order to establish the dumping margin, a fair comparison must be made between the export price and the normal value.

17. 2. Material injury has been suffered by the Community Industry concerned. In determining the effect on prices, an important consideration is the extent to which the import price undercuts the Community producers’ price.

18. 3. There is a causal link between the dumping and injury found
3. There is a causal link between the dumping and injury found. The dumped imports must be a cause of the injury. They need not be the only cause - other factors might also contribute.

19. 4. Anti-dumping measures must not be against the Community interest – including the domestic industry producing the product concerned, importers, Community industries that use the imported product and will ultimately pay a higher price and, where relevant, the end consumer of the product.

20. Thank you for your attention! 