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International trade between similar developed countries.

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Why does most of the worlds' international trade take place between similar developed economies?

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Solution Summary

Trade between countries need not depend upon country differences under the assumption of economies of scale. Indeed, it is conceivable that countries could be identical in all respects and yet find it advantageous to trade.

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To begin with one of the major reasons that international trade may take place is the existence of economies of scale (also called increasing returns to scale) in production. An economy of scale means that production at a larger scale (more output) can be achieved at a lower cost (i.e. with economies or savings). When production within an industry has this characteristic, ...

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