Paul Krugman formed a theory named as New Trade Theory.
According to New trade theory, the source of the home market effect is that the
Preference for economies of scale drives a great specialization on specific products which are in the high demand in the home market only where economies of scale can be attained.
It also leads to surpluses which drive a higher rate of sales of those products in foreign markets.
Krugman described in New trade theory that the preference for economies of scale explains another outcome which the economists had been unable to predict with the help of traditional models.
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