DOCSLIB.ORG

Free Trade and Absolute and Comparative Advantage

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text

Load more

Universität Potsdam This thesis deals with two theories of international trade: the theory of comparative advantage, which is connected to the name David Ricardo and is dominating current trade theory, and Adam Smith’s theory of ab- solute advantage. Both theories are compared and their assumptions are scrutinised. The former theory is rejected on theoretical and empirical grounds in favour of the latter. On the basis of the theory of absolute ad- vantage, developments of free international trade are examined, whereby the focus is on trade between industrial and underdeveloped countries. Reinhard Schumacher The main conclusions are that trade patterns are determined by absolute production cost advantages and that the gap between developed and poor countries is not reduced but rather increased by free trade. Free Trade and Absolute and Comparative Advantage ISSN 1866-0738 ISBN 978-3-86956-195-0 and Comparative Advantage and Absolute Reinhard Schumacher | Trade Free WeltTrends Thesis | 16 Reinhard Schumacher Free Trade and Absolute and Comparative Advantage WeltTrends Thesis | 16 Reinhard Schumacher Free Trade and Absolute and Comparative Advantage A Critical Comparison of Two Major Theories of International Trade Universitätsverlag Potsdam Bibliografische Information der Deutschen Nationalbibliothek Die Deutsche Nationalbibliothek verzeichnet diese Publikation in der Deutschen Nationalbibliografie; detaillierte bibliografische Daten sind im Internet über http://dnb.de abrufbar. Universitätsverlag Potsdam 2012 http://verlag.ub.uni-potsdam.de Am Neuen Palais 10, 14469 Potsdam Tel.: +49 (0)331 977 2533, Fax: -2292 E-Mail: [email protected] Die Schriftenreihe WeltTrends Thesis wird herausgegeben von Prof. Dr. habil. Jochen Franzke, Universität Potsdam, im Auftrag von WeltTrends e. V. Band 16 (2012) Reinhard Schumacher: Free Trade and Absolute and Comparative Advantage A Critical Comparison of Two Major Theories of International Trade Zugl.: Potsdam, Univ., Diplomarbeit, 2012 Produktionsleitung: Tim Haberstroh Satz: André Kadanik Druck: docupoint GmbH Magdeburg Das Manuskript ist urheberrechtlich geschützt. © WeltTrends, Potsdam 2012 ISSN (print) 1866-0738 ISSN (online) 2191-1673 ISBN 978-3-86956-195-0 Zugleich online veröffentlicht auf dem Publikationsserver der Universität Potsdam URL http://pub.ub.uni-potsdam.de/volltexte/2012/6023/ URN urn:nbn:de:kobv:517-opus-60237 [http://nbn-resolving.org/urn:nbn:de:kobv:517-opus-60237] Contents List of Tables and Figures 6 List of Abbreviations 6 Author's Short Biography 6 1 Introduction 9 2 The Theory of Absolute Advantage 13 2.1 Adam Smith, the Division of Labour, and the Labour Theory of Value 13 2.2 Adam Smith and Gains from International Trade 15 2.3 Adam Smith and the Pattern of Trade 19 2.4 Absolute Advantage after Adam Smith 22 3 The Theory of Comparative Advantage 25 3.1 David Ricardo and Comparative Advantage 25 3.1.1 The England-Portugal Example: Gains from International Trade 26 3.1.2 The Role of David Hume’s Price-Specie-Flow Mechanism 31 3.2 Modern Presentation of the Theory of Comparative Advantage 35 3.2.1 The Ricardian Model 35 3.2.2 The Standard Trade Model 40 3.3 Conclusion 45 4 Comparison of the Theories of Absolute and Comparative Advantage 49 4.1 International and Domestic Trade 50 4.2 Balanced Trade and Adjustment Mechanism 54 4.3 Full Employment of Capital and Labour 57 4.4 Specialisation and Gains from International Trade 61 4.5 Harmony vs. Struggle 64 4.6 Who is right? A Short Evaluation of the Differences 67 5 Smith’s Theory of Absolute Advantage and Trade between Developed and Underdeveloped Countries 77 5.1 The England-Portugal Example Re-Examined 78 5.2 Effects of Free Trade on Rich and on Poor Countries 81 6 Concluding Remarks 91 7 Reference List 95 Tables and Figures TABLES Table 2.1 A Textbook Example of Absolute Advantages 23 Table 3.1 Initial Situation of Ricardo’s England-Portugal Example 27 Table 3.2 An Example of the Ricardian model 37 FIGURES Figure 3.1 Production Possibility Frontier (PPF) and Social Indifference Curve 38 Figure 3.2 Gains from Trade in the Ricardian Model 39 Figure 4.1 Dynamic Gains from Trade 62 Abbreviations EU European Union GATT General Agreement on Tariffs and Trade GDP Gross Domestic Product HOM Heckscher-Ohlin Model PPF Production Possibility Frontier WN An Inquiry into the Nature and Causes of the Wealth of Nations, book by Adam Smith, published 1776 WTO World Trade Organisation Reinhard Schumacher, born in 1984, graduated 2010 with a Diploma Degree in Political Science and Public Administration (Verwaltungswis- senschaft) after having studied at the University of Potsdam and the Uni- versity of Limerick. He currently works as a research assistant at the Chair of Economic Policy and International Economics at the University of Pots- dam. Research interests: International Political Economy, Trade Theory and Policy, Development Economics, History of Economic Thought. Contact: [email protected] Publikation von Abschlussarbeiten Seit zwei Jahrzehnten betreuen wir akademische Veröffentlichungen. Seit fünf Jahren publizieren wir in der Reihe WeltTrends Thesis studentische Abschlussarbeiten (Magister-, Diplom- und Masterarbeiten) mit dem Schwerpunkt internationale Beziehungen und vergleichende Länderstudien in ansprechender Form. Unser Angebot: WeltTrends übernimmt Korrektorat, Satz und Werbung. Der Universitätsverlag Potsdam realisiert die Buchpublikation, die Online-Veröffentlichung auf dem zertifizierten Publikations- server der Universität Potsdam sowie den Nachweis in den relevanten bibliografischen Datenbanken und Bibliothekskatalogen. Sie erhalten zehn Autorenexemplare, weitere Exemplare gibt es zum Sonderpreis. Die Kosten liegen für Sie deutlich unter den üblichen Verlagsangeboten. Die konkreten Konditionen, z. B. mit Farbfotos oder in englischer Sprache, werden nach Vorlage des Manuskripts abgesprochen. Bisher erschienen: 1 | Kolleck: FTAA/ALCA – Von Alaska bis Feuerland? 2 | Die „dritte Generation“ – „Trzecie pokolenie“ 3 | Kube: Immigration und Arbeitskämpfe in den USA 4 | Krämer: Die Politik Deutschlands in der Kosovofrage 5 | Bar: Wasserkonflikte in Zentralasien 6 | Iro: UN Peacebuilding Commission in Sierra Leone 7 | Dittrich: Die FDP und die deutsche Außenpolitik 8 | Chinalski: Regional Governance in der Oder-Partnerschaft 9 | Kolanoski: Die Entsendung der Bundeswehr ins Ausland 10 | Kaltschew: Das politische System Kenias 11 | Wernert: Die Rolle der Afrikanischen Union 12 | Klein: Rechtspopulistische Parteien in Regierungsbildungsprozessen 13 | Vogt: Strategische Aspekte deutscher Weltraumsicherheitspolitik www.welttrends.de 14 | Wagener: Der EU-Verfassungsvertrag und die Positionen linker Parteien 15 | Kasper: EU-Nachbarschaftspolitik als Instrument der Demokratieförderung Ansprechpartner: Prof. Dr. Jochen Franzke 0331 977 3414 ([email protected]) Büro WeltTrends 0331 977 4540 ([email protected]) 1 Introduction Foreign trade is an old phenomenon. In modern times international trade has become more common than at any time before and it is hard to imagine our world without international trade. Each time we buy goods, parts of them or even the whole good was produced abroad. On the other hand, German cars, for example, are driven in nearly every country of the world. It is not a question whether a country should participate in international trade. Besides a few exceptions (e.g. North Korea), every country participates in international trade. The overall amount of international trade is constantly increasing. Even setbacks like “the Great recession” – the term that is used to label the latest eco- nomic crisis1 – have only a temporary negative effect on world trade. Between 1948 and 2004 the volume of world trade (in US dollars) in- creased about one hundred fifty fold.2 International trade has grown by 4 percent each year on average since 1920. In the same period, world- wide GDP grew “only” by 2.7 percent each year on average.3 The concept of free trade is not as old as international trade it- self, but it is not a new topic. Economists are engaged with it since more than two hundred years. Today it concerns big parts of the world population. Inside the European Union (EU), free trade is even di- rectly perceivable by ordinary citizens. Nowadays, every citizen cannot only travel unrestricted between the EU countries but going through customs is history as well. Everybody can freely buy goods in another EU country without restrictions. The development of the EU led to a European single market that contains four freedoms, namely the free movement of goods, the free movement of capital, the free movement of services, and the free movement of persons.4 Internationally, trade is not as free as inside the EU. However, after World War II, an international trade system was developed with the aim of introducing free trade worldwide. In the framework of the General Agreement on Tariffs and Trade (GATT) trade barriers were reduced. In the last decades, the world became more and more economically integrated.5 The World Trade Organisation (WTO) that succeeded the GATT provides a legal and institutional base for international trade and 1 See The Economist 2009c, 13. 2 See O'Brien/Williams 2008, 159. Exports rose from $58 billion to $8,907 billion and imports increased from $66 billion to $9,252 billion. 3 See Maddison 1991, 74. 4 See Dicke 2004. 5 See Krugman/Obstfeld 2009, 227–42. 10 Free Trade and Absolute and Comparative Advantage continues the reduction of trade barriers.6 The function of the WTO is
Recommended publications
  • Comparative Advantage and Trade Performance: Policy Implications”, OECD Trade Policy Papers, No

    Comparative Advantage and Trade Performance: Policy Implications”, OECD Trade Policy Papers, No

    Please cite this paper as: Kowalski, P. (2011), “Comparative Advantage and Trade Performance: Policy Implications”, OECD Trade Policy Papers, No. 121, OECD Publishing. http://dx.doi.org/10.1787/5kg3vwb8g0hl-en OECD Trade Policy Papers No. 121 Comparative Advantage and Trade Performance POLICY IMPLICATIONS Przemyslaw Kowalski JEL Classification: F11, F14, F16, F17 OECD TRADE POLICY WORKING PAPERS The OECD Trade Policy Working Paper series is designed to make available to a wide readership selected studies by OECD staff or by outside consultants. This document has been declassified on the responsibility of the Working Party of the Trade Committee under the OECD reference number TAD/TC/WP(2010)38/FINAL. Comments on the series are welcome and should be sent to [email protected]. OECD TRADE POLICY WORKING PAPERS are published on www.oecd.org/trade © OECD 2011 Applications for permission to reproduce or translate all or part of this material should be made to: OECD Publishing, [email protected] or by fax 33 1 45 24 99 30 Abstract COMPARATIVE ADVANTAGE AND TRADE PERFORMANCE: POLICY IMPLICATIONS Przemyslaw Kowalski Trade Policy Analyst, Development Division, OECD This paper builds on recent generalisations of theory and empirics of comparative advantage and establishes the relative importance of different sources of comparative advantage in explaining trade, with particular focus on policy and institutional factors. The broad policy and institutional areas posited as determinants of comparative advantage in this paper include: physical capital, human capital (distinguishing between secondary, tertiary education and average years of schooling), financial development, energy supply, business climate, labour market institutions as well as import tariff policy.
  • The Global Trading System

    The Global Trading System

    COVER STORY • Global Governance at a Crossroads – a Roadmap Towards the G20 Summit in Osaka • 3 he Global Trading System: What Went Wrong & How to Fix It TBy Edward Alden Author Edward Alden Introduction in what will become a prolonged era of growing nationalism and protectionism. Gideon Rachman, the Financial Times columnist, has It has now been more than a quarter century since the United argued that the nationalist backlash symbolized by Trump’s election States, the European Union (EU), Japan and more than 100 other and the 2016 Brexit vote in the United Kingdom is likely to spread to countries came together to conclude the Uruguay Round global trade other countries and persist for several decades. But, he noted, those agreement and establish the World Trade Organization (WHO). It was movements will have to show that they can deliver not just promises a time of extraordinary optimism. Mickey Kantor, US trade but real economic results. So far – as the process of the UK representative for President Bill Clinton, had endured many sleepless government and parliament’s efforts to leave the EU show – real nights with his counterparts to bring the deal home by the Dec. 15, economic results have not been delivered. But champions of 1993 deadline. He promised the new agreement would “raise the globalization and the “rules-based trading system” cannot simply standard of living not only for Americans, but for workers all over the wait and hope that the failures of economic nationalism will become world”. Every American family, he said, would gain some $17,000 evident.
  • Comparative Advantage and Trade Policy - Bharat R

    Comparative Advantage and Trade Policy - Bharat R

    INTERNATIONAL ECONOMICS, FINANCE AND TRADE – Vol.I - Comparative Advantage and Trade Policy - Bharat R. Hazari, Pasquale M. Sgro COMPARATIVE ADVANTAGE AND TRADE POLICY Bharat R. Hazari Professor of Economics, School of Economics, Deakin University, Melbourne, Australia Pasquale M. Sgro Professor of Economics, School of Economics, Deakin University, Melbourne, Australia Keywords: absolute advantage, autarky, community indifference curve, comparative advantage, consumer surplus, domestic market failure, dual markets, exports, first-best, factor endowments, free trade, import substitution, infant industry, Heckscher-Ohlin, imports, manufacturers, non-tariff barriers, optimal tariff, pattern of trade, producer surplus, production possibility curve, protection, quotas, Ricardo, second-best, tariffs, technological differences, transformation surface, tariff revenue. Contents 1. Introduction 2. Comparative Advantage 2.1. The Ricardian Theory of Comparative Advantage 2.2. The Heckscher-Ohlin Theory of Comparative Advantage 3. Free Trade 4. Tariff and Non-Tariff Barriers 5. International Trade Policy Glossary Bibliography Biographical Sketches Summary The theory of comparative advantage suggests that voluntary trade between nations takes place because it is mutually beneficial, and that the pattern of trade is determined by differences in comparative advantage. Despite the undeniable gains free trade produces, throughout history countries have applied both tariff and non-tariff barriers to restrict trade. The concepts of consumer and producer surplus are often used to measure both the welfare benefits of free trade and the welfare costs of imposing tariffs. Both economicUNESCO and non-economic reasons have – been EOLSS used justify the restriction of trade. 1. IntroductionSAMPLE CHAPTERS Nations trade with each other because they consider it to be mutually beneficial. The gains occur in at least two ways.
  • A Citizen's Guide to the World Trade Organization

    A Citizen's Guide to the World Trade Organization

    A Citizens Guide to THE WORLD TRADE A Citizens Guide to the World Trade ORGANIZATION Organization Published by the Working Group on the WTO / MAI, July 1999 Printed in the U.S. by Inkworks, a worker- owned union shop ISBN 1-58231-000-9 EVERYTHING YOU NEED TO KNOW TO The contents of this pamphlet may be freely reproduced provided that its source FIGHT FOR is acknowledged. FAIR TRADE THE WTO AND this system sidelines environmental rules, health safeguards and labor CORPORATE standards to provide transnational GLOBALIZATION corporations (TNCs) with a cheap supply of labor and natural resources. The WTO also guarantees corporate access to What do the U.S. Cattlemen’s Associa- foreign markets without requiring that tion, Chiquita Banana and the Venezu- TNCs respect countries’ domestic elan oil industry have in common? These priorities. big business interests were able to defeat hard-won national laws ensuring The myth that every nation can grow by food safety, strengthening local econo- exporting more than they import is central mies and protecting the environment by to the neoliberal ideology. Its proponents convincing governments to challenge the seem to forget that in order for one laws at the World Trade Organization country to export an automobile, some (WTO). other country has to import it. Established in 1995, the WTO is a The WTO Hurts U.S. Workers - Steel powerful new global commerce agency, More than 10,000 which transformed the General Agree- high-wage, high-tech ment on Tarriffs and Trade (GATT) into workers in the U.S. an enforceable global commercial code.
  • Distributional Effect of International Trade and Comparative Advantage in Labor Markets∗

    Distributional Effect of International Trade and Comparative Advantage in Labor Markets∗

    Distributional Effect of International Trade and Comparative Advantage in Labor Markets∗ Rodrigo Adão MIT September 20, 2015 Abstract This paper investigates the distributional consequences of international trade shocks in the con- text of the Brazilian labor market. First, I document a new set of facts about how differential ex- posure to commodity price shocks across educational groups and regions leads to differential out- comes in terms of sectoral employment and wages. Second, I show that such facts are qualitatively consistent with a two-sector Roy model where worker heterogeneity regarding comparative and ab- solute advantage in sector-specific tasks determines the structure of employment and wages. Third, I establish that the schedules of comparative and absolute advantage are nonparametrically iden- tified from cross-regional variation in sectoral responses of employment and wages induced by sector demand shocks. Lastly, I build on this result to structurally estimate the model in the sample of Brazilian local labor markets. My structural estimates indicate that a 10% decrease in commod- ity prices causes counterfactual increases of 1.2% in the skill wage premium and of 5% in wage dispersion. ∗Author contact information: [email protected]. I am extremely grateful to Daron Acemoglu, Arnaud Costinot and Dave Donaldson for invaluable guidance and support. I also thank Pol Antras, David Autor, Arthur Braganca, Ariel Burstein, Dejanir Silva as well as seminar participant at the MIT Labor Lunch and the MIT Macro-International Lunch. All errors are my own. 1 1 Introduction In an integrated world economy, shocks in a particular country have the potential to exert different effects across different workers within another country located on the other side of the globe.
  • International Trade

    International Trade

    International Trade or centuries, people of the world have traded. From the ancient silk routes and spice trade to modern F shipping containers and satellite data transfers, nations have tied their economies to the rest of the world by complex flows of products and services. Free trade, which allows traders to interact without barriers imposed by government, can improve the living standards of people because it reduces prices and increases the variety of goods and services for consumers. It can also create new jobs and opportunities, and it encourages innovative uses of resources. However, even though free trade can benefit an economy as a whole, specific groups may be hurt. While certain sectors will experience job gains, others will face job losses. Still, societies throughout history have found that the benefits of international trade outweigh the costs. Why Trade? As consumers, all of us have an interest in trading they live, is because they believe they will be better with other countries. We often are unaware of trade’s off by trading. When we consider the alternative— influence on product prices and the quality and each of us producing everything for ourselves—trade availability of the goods we buy. But we all benefit simply makes more sense. from the greater abundance and variety of products and the lower prices that trading with others makes Trade is beneficial because it allows people to possible. Without trade, countries become isolated. specialize, or concentrate their work in the type of The quality of their goods and services lags behind production that they do best.
  • SWUTC/09/167861-1 the US-Brazil-China Trade and Transportation Triangle

    SWUTC/09/167861-1 the US-Brazil-China Trade and Transportation Triangle

    Technical Report Documentation Page 1. Report No. 2. Government Accession No. 3. Recipient's Catalog No. SWUTC/09/167861-1 4. Title and Subtitle 5. Report Date March 2009 The U.S.-Brazil-China Trade and Transportation Triangle: 6. Performing Organization Code Implications for the Southwest Region 7. Author(s) 8. Performing Organization Report No. Dr. Leigh B. Boske and John C. Cuttino Report 167861 9. Performing Organization Name and Address 10. Work Unit No. (TRAIS) Center for Transportation Research University of Texas at Austin 11. Contract or Grant No. 3208 Red River, Suite 200 10727 Austin, Texas 78705-2650 12. Sponsoring Agency Name and Address 13. Type of Report and Period Covered Southwest Region University Transportation Center Texas Transportation Institute Texas A&M University System 14. Sponsoring Agency Code College Station, Texas 77843-3135 15. Supplementary Notes Supported by general revenues from the State of Texas. 16. Abstract The advent of globalization and more integrated international trade has placed increased demands on transportation infrastructure. This report assesses the impacts of triangular trade between and among the United States, Brazil and China with an emphasis on the effects on the U.S. Southwest region. Triangular trade is viewed through a trade corridor analysis of the three sets of bilateral trading relationships. Special emphasis is given to the transportation services that delimit the capacity to carry out triangular trade with particular attention to the latest developments in services and schedules. While international trade trend analysis may point to China’s explosive consumption of raw materials from the U.S. and Brazil, this report also signals the increasing Chinese presence in the U.S.
  • The Dominican Republic's Trade, Policies, and Effects in Historical Perspective

    The Dominican Republic's Trade, Policies, and Effects in Historical Perspective

    Trading development or developing trade? The Dominican Republic’s trade, policies, and effects in historical perspective* LETICIA ARROYO ABAD Profesora asistente del Department of Economics and in the International Politics & Economics, Middlebury College (EEUU). Correo electrónico: [email protected]. La autora es Licenciada en Economía de la Universidad Católica Argentina. Magister en estudios latinoa- mericanos de la University Of Kansas (EEUU). Doctora en economía con especialización en historia económica latinoamericana de la University of California, Davis (EEUU). Entre sus publicaciones tenemos: “Persistent Inequality? Trade, Factor Endowments, and Inequality in Republi- can Latin America”Journal of Economic History 73-1 (2012); y “Between Conquest and Independence: Living Standards in Spanish Latin America”, Explorations in Economic History, 49-2 (2012). Entre sus intereses se encuentran los temas de historia económica latinoamericana, los estudios sobre los estándares de vida, desigualdad e instituciones. AMELIA U. SANTOS-PAULINO Afiliada institucionalmente a la United Nations Conference on Trade and Development (Suiza). Correo electrónico: [email protected]. La autora es Licenciada en Eco- nomía de la Pontificia Universidad Católica Madre y Maestra (República Dominicana) y Doctora en Economía de la University of Kent (Reino Unido). Tenemos entre sus publi- caciones recientes: “Can Free Trade Agreements Reduce Economic Vulnerability?,” South African Journal of Economics Vol. 74, 4 (2011) y “The Dominican Republic Trade Policy Review 2008,” The World Economy Vol. 33,11 (2010). Sus líneas de investigación son: comercio exterior y desarrollo económico. Recibido: 30 de noviembre de 2012 Aprobado: 03 de abril de 2013 Modificado: 15 de mayo de 2013 Artículo de investigación científica * El presente artículo es resultado del proyecto de investigación “Long-term economic growth and 209 development”; financiada por la Foundation and the American Philosophical Society, (EEUU).
  • Preventing Deglobalization: an Economic and Security Argument for Free Trade and Investment in ICT Sponsors

    Preventing Deglobalization: an Economic and Security Argument for Free Trade and Investment in ICT Sponsors

    Preventing Deglobalization: An Economic and Security Argument for Free Trade and Investment in ICT Sponsors U.S. CHAMBER OF COMMERCE FOUNDATION U.S. CHAMBER OF COMMERCE CENTER FOR ADVANCED TECHNOLOGY & INNOVATION Contributing Authors The U.S. Chamber of Commerce is the world’s largest business federation representing the interests of more than 3 million businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations. Copyright © 2016 by the United States Chamber of Commerce. All rights reserved. No part of this publication may be reproduced or transmitted in any form—print, electronic, or otherwise—without the express written permission of the publisher. Table of Contents Executive Summary ............................................................................................................. 6 Part I: Risks of Balkanizing the ICT Industry Through Law and Regulation ........................................................................................ 11 A. Introduction ................................................................................................. 11 B. China ........................................................................................................... 14 1. Chinese Industrial Policy and the ICT Sector .................................. 14 a) “Informatizing” China’s Economy and Society: Early Efforts ...... 15 b) Bolstering Domestic ICT Capabilities in the 12th Five-Year Period and Beyond ................................................. 16 (1) 12th Five-Year
  • Underdevelopment and Unregulated Markets: Seven Reasons Why Unregulated Markets Reproduce Underdevelopment

    Underdevelopment and Unregulated Markets: Seven Reasons Why Unregulated Markets Reproduce Underdevelopment

    A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Herr, Hansjörg Working Paper Underdevelopment and unregulated markets: Seven reasons why unregulated markets reproduce underdevelopment Working Paper, No. 103/2018 Provided in Cooperation with: Berlin Institute for International Political Economy (IPE) Suggested Citation: Herr, Hansjörg (2018) : Underdevelopment and unregulated markets: Seven reasons why unregulated markets reproduce underdevelopment, Working Paper, No. 103/2018, Hochschule für Wirtschaft und Recht Berlin, Institute for International Political Economy (IPE), Berlin This Version is available at: http://hdl.handle.net/10419/178653 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu Key words: underdevelopment, financial system, free trade, inequality, Keynesian paradigm, Washington Consensus. JEL classification: B50, F40, O11 Contact: Hansjörg Herr email: [email protected] 1.
  • Has US Comparative Advantage Changed? Does This Affect Sustainability?

    Has US Comparative Advantage Changed? Does This Affect Sustainability?

    3 Has US Comparative Advantage Changed? Does This Affect Sustainability? The evidence is overwhelmingly persuasive that the massive increase in world competition— a consequence of broadening trade flows—has fostered markedly higher standards of liv- ing . this surge in competitive trade has clearly owed, in large part, to significant advances in technological innovation. —Alan Greenspan, chairman of the Federal Reserve Board, “Technology and Trade,” remarks before the Dallas Ambassadors Forum, Dallas, Texas (16 April 1999) [T]he globalization system . is not static, but a dynamic ongoing process: globalization involves the inexorable integration of markets, nation-states and technologies to a degree never witnessed before—in a way that is enabling individuals, corporations and nation- states to reach around the world farther, faster, deeper and cheaper than ever before. —Thomas L. Friedman, The Lexus and the Olive Tree (1999) Why Trade? People trade because they want different things, have different skills, and earn different amounts of money. With individuals represented by their national aggregates, countries trade for the same reasons. Countries differ from one another in terms of resources and the techniques firms use to produce goods and services. People value goods and services differently, depending on their income and tastes. Investors in financial assets have different preferences for risk, return, and diversification. These differ- 29 Institute for International Economics | http://www.iie.com ences are reflected across countries as differences in costs of production, prices for products and services, and rates of return on and “exposures”1 to financial assets. Because costs, prices, and returns differ across countries, it makes sense for a country to trade some of what it produces most cheaply and holds less dear to people who want it more and for whom production is costly or even impossible.
  • Balance Trade

    Balance Trade

    SECTION 2 • CHAPTER 4 Balance trade In this Oct. 18, 2011 photo, crew members look on as containers are offloaded from the cargo ship Stadt Rotenburg at Port Everglades in Fort Lauderdale. AP PHOTO/WILFREDO LEE oods and services trade—exports plus imports—now account for nearly one-third of overall U.S. economic Gactivity,2 meaning trade’s importance to the economy has never been greater. The United States is the world’s largest exporter,3 with exports directly supporting an estimated 9.7 million jobs.4 At the same time, the United States is also the world’s largest importer, and herein lies the problem. Over the past 30 years, our trade balance has been shifting in the wrong direction—toward more imports than exports—and reached a $560 billion deficit in 2012.5 While imports can be a boon to U.S. economic ing also carry offsetting costs, including job productivity and American living standards, losses domestically. Second, in order to pay providing consumers and business with for the imports from abroad that exceed U.S. access to a larger variety of goods and ser- exports, the U.S. economy must balance this vices at lower costs than would otherwise be trade deficit by selling assets—stocks, bonds, the case, there is also a price to pay. and other assets such as companies and real estate—to overseas purchasers. Mounting trade deficits present two key problems for the U.S. economy. First, the Our trade imbalance has resulted from a economic benefits made possible by import- number of factors.