The theory that in a world of imperfect competition, international trade is driven as much by increasing returns and external economies as by comparative advantage. ‘What matters, instead, is the overall pattern of trade: the broad pattern of what countries produce is determined by things like resources and climate, but there’s a lot of additional specialization due to economies of scale, and there’s much more trade, especially between similar countries, than you would expect from a purely resource-based theory’ (Krugman, U. of Calgary, Dept. of Economics). Martin and Sunley (1996) Econ. Geog. 72, 8, 259 explain more fully.

http://econ.ucalgary.ca/node/294 Website of U. of Calgary, Dept. of Economics, ‘Krugman on Krugman’.