There is considerable overlap between the theory of location and trade theory. Krugman (1993) compares and contrasts the theory of space and the theory of trade. Controversy, theory, ultimately quite similar issues in their address, (OECD 2006) as well as the assumptions they make. Neither theory nor trade places theory in essence international. Optimal location of production may be within a single country, such asIowaandNew Yorkin the example above. Neither theory nor the place of trade theory is determined by specific countries or regions in which the production of certain goods will be located.
The theory of trade is drawn to the characteristics of production locations, (Learner 1984) such as relative factor endowments necessary for the production of specific products or comparative advantage in producing one product to another. Location interpretation theory of optimal location of production, (Krugman 1994) taking into account the costs of factors of production and transportation costs for consumers. In order to determine which countries or regions will specialize in the manufacture of which products, (Krugman 1993) the researchers tested this theory on the basis of data on production characteristics of the goods, the factor endowments of countries, as well as transportation costs. The sources of international comparative advantage, Edward Learner (1984) examines the exact relationship, indicated in neoclassical trade theory and predicts the specific countries in which production for export should be located. (Krugman 1991) The evidence, at best, imperfect Fit with the predictions of the theory and the theory of space and the neoclassical theory of trade.
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