We investigate the interplay, in international trade, between comparative advantage and increasing returns to scale that are external to the firm. We focus especially on "advantage reversals," where the country with a comparative-cost disadvantage in producing a good nevertheless is able to...

Trading blocks can help or hinder the liberalization of world trade. A determining factor is whether trade within the block is organized around traditional comparative advantages, or around economies of scale. Regional free trade agreements such as NAFTA can he a substitutes for global free...