What is the primary focus of Krugman's Strategic Trade Theory?

What is the primary focus of Krugman's Strategic Trade Theory?

• A. Government intervention in markets
• B. Free trade principles
• C. Long-term investment strategies
• D. Niche market competition

Answer: (A)

Krugman's Strategic Trade Theory primarily emphasizes the role of government intervention in markets to enhance a nation's competitive advantage in specific industries, particularly where economies of scale and the presence of monopolistic competition are relevant. The theory posits that through strategic government policies, such as subsidies, tariffs, or other forms of support, a country can help its industries achieve a stronger international market position. This approach counters the traditional view of free trade, which advocates minimal government interference. Instead, Strategic Trade Theory suggests that in certain situations, especially in high-tech or emerging industries where initial investment costs are high, government involvement can correct market failures and produce better outcomes than a purely free market. By doing so, countries can cultivate industries that may lead to sustainable economic growth. The other choices do not align with the core ideas of Krugman's theory. Free trade principles focus on minimal governmental interference, whereas long-term investment strategies relate more to financial frameworks than market regulations. Niche market competition pertains to specific segments of the market and doesn't encapsulate the broader implications of government action emphasized in Strategic Trade Theory.

Krugman's Strategic Trade Theory primarily emphasizes the role of government intervention in markets to enhance a nation's competitive advantage in specific industries, particularly where economies of scale and the presence of monopolistic competition are relevant. The theory posits that through strategic government policies, such as subsidies, tariffs, or other forms of support, a country can help its industries achieve a stronger international market position.

This approach counters the traditional view of free trade, which advocates minimal government interference. Instead, Strategic Trade Theory suggests that in certain situations, especially in high-tech or emerging industries where initial investment costs are high, government involvement can correct market failures and produce better outcomes than a purely free market. By doing so, countries can cultivate industries that may lead to sustainable economic growth.

The other choices do not align with the core ideas of Krugman's theory. Free trade principles focus on minimal governmental interference, whereas long-term investment strategies relate more to financial frameworks than market regulations. Niche market competition pertains to specific segments of the market and doesn't encapsulate the broader implications of government action emphasized in Strategic Trade Theory.