scholarly journals Free Trade in Theory and Policy: Contemporary Challenges

2018 ◽  
Vol 7 (2) ◽  
pp. 13-35
Author(s):  
Daniel Nagel ◽  
Sorin Burnete
Keyword(s):  
International Trade ◽  
Free Trade ◽  
Comparative Advantage ◽  
Policy Instruments ◽  
Theoretical Models ◽  
Trade Theory ◽  
Common Parlance ◽  
Per Se ◽  
Foreign Competitors

Abstract Free trade denotes a state of international commercial relations premised on governments’ restraint from using policy instruments meant to favor indigenous industries against foreign competitors. According to the conventional trade theory advocated by classical and neo-classical thinkers, free trade makes little economic sense failing nations’ tendency to specialize based on comparative advantage, a concept with high persuasive influence despite the elapsing of time. Even though the comparative advantage rule has seldom been questioned per se, the free trade concept has been fiercely disputed and not infrequently, bashed. Nations’ involvement in international trade often follows patterns that do not fit theoretical models but attempt to respond to circumstantial interests, most often the need to protect poorly competitive industries. In common parlance, free trade has had both proponents and enemies.

scholarly journals Is Free Trade Passé?

1987 ◽  
Vol 1 (2) ◽  
pp. 131-144 ◽  
Author(s):  
Paul R Krugman
Keyword(s):  
International Trade ◽  
Free Trade ◽  
Comparative Advantage ◽  
Imperfect Competition ◽  
Perfect Competition ◽  
Trade Theory ◽  
International Trade Theory ◽  
Export Subsidies ◽  
Good Policy ◽  
Import Restrictions

If there were an Economist's Creed, it would surely contain the affirmations “I understand the Principle of Comparative Advantage” and “I advocate Free Trade.” Yet the case for free trade is currently more in doubt than at any time since the 1817 publication of Ricardo's Principles of Political Economy, and this is due to changes that have recently taken place in the theory of international trade. While new developments in international trade theory may not yet be familiar to the profession at large, they have been substantial and radical. In the last ten years the traditional constant returns, perfect competition models of international trade have been supplemented and to some extent supplanted by a new breed of models that emphasizes increasing returns and imperfect competition. These new models call into doubt the extent to which actual trade can be explained by comparative advantage; they also open the possibility that government intervention in trade via import restrictions, export subsidies, and so on may under some circumstances be in the national interest after all. To preview this paper's conclusion: free trade is not passé, but it is an idea that has irretrievably lost its innocence. Its status has shifted from optimum to reasonable rule of thumb. There is still a case for free trade as a good policy, and as a useful target in the practical world of politics, but it can never again be asserted as the policy that economic theory tells us is always right.

Ten Pages that Changed the World: Deconstructing Ricardo∗

2009 ◽  
Vol 2 (1) ◽  
pp. 1-33 ◽  
Author(s):  
Richard Peet
Keyword(s):  
Free Trade ◽  
Economic Geography ◽  
Comparative Advantage ◽  
Development Policy ◽  
Open Market ◽  
Trade Theory ◽  
The World ◽  
Neoliberal Development ◽  
Trading Scheme ◽  
Political Economic

Powerful ideas that shape the world become taken-for-granted verities, in two senses of the term: as the only world that is known; and as the only world that can be imagined. When hegemony controls the imagination, fundamental criticism becomes difficult, and perhaps, impossible. Yet what if there were flaws in the original idea, from which new worlds were constructed, that have materialized in a political-economic geography beset with seemingly unsolvable problems? For example, what if there have always been fundamental flaws in the free trade, open market, competitive, global system that dominates both the world as we know it and the conventional political-economic-geographical thought we know it through? This article speculates that a psycho-discursive act of deconstruction might unravel the entire, subsequent discourse. It aims deconstruction at a founding statement in the free trade, global ideal, by looking critically at David Ricardo's theory of comparative advantage. Ricardo's argument that specialization and free trade are universally beneficial, became a founding premise of conventional economic theory and a basic prescription of liberal and neoliberal development policy. The article looks critically: at the logical consistency and representational accuracy of Ricardo's theory, especially the claim that all participants benefit from participation in a free trading scheme, so that trade brings about a far better world. The article reaches two main, critical conclusions: free trade theory based in comparative advantage has, from the beginning, been an ideology for creating economic spaces open to domination by powerful, leading countries; economics and economic geography have, since their classical beginnings, been biased in that their founding statements reverse the reality they pretend accurately to represent.

Trade and Spatial Growth

2017 ◽  
Vol 18 (1) ◽  
pp. 94-111
Author(s):  
Sirimal Abeyratne ◽  
N. S. Cooray
Keyword(s):  
International Trade ◽  
Comparative Advantage ◽  
Global Economy ◽  
Spatial Concentration ◽  
Trade Theory ◽  
Missing Link ◽  
Spatial Growth

Comparative advantage is based on ‘locational factors’ so that trade leads to growth and its spatial concentration. Until recently, the nexus between trade and spatial growth received little space within trade analyses though it did not appear to be a missing link in initial contributions to trade theory. The reshaping of the global economy with greater integration has called for analyses of trade and spatial growth. This article examines theoretical premises of the link between international trade and spatial growth, and the implications of reshaping of the global economy for the study of spatial growth within trade theory.

Psychology and opposition to free trade

2007 ◽  
Vol 6 (1) ◽  
pp. 25-44 ◽  
Author(s):  
SIMON KEMP
Keyword(s):  
International Trade ◽  
Free Trade ◽  
Comparative Advantage ◽  
Loss Aversion ◽  
General Public ◽  
Status Quo ◽  
Status Quo Bias

This paper reviews psychological reasons why the enthusiasm of the general public for free international trade might be less than that of the economist. Six specific reasons are advanced: (1) lay views of utility emphasize employment over consumption; (2) status quo bias results from loss aversion; (3) people think altruistically but parochially; (4) people often consider fairness in bargaining situations; (5) people may hold inappropriate fixed pie beliefs; and (6) people may misunderstand Ricardo's principle of comparative advantage. The reasons vary in their apparent rationality and appear to operate in concert rather than independently.

scholarly journals International Trade Arising from Wage Differences

2009 ◽  
Vol 14 (Special Edition) ◽  
pp. 135-154
Author(s):  
Sikander Rahim
Keyword(s):  
International Trade ◽  
Free Trade ◽  
Industrial Policy ◽  
Industrial Development ◽  
High Wage ◽  
Trade Theory ◽  
Wage Differences ◽  
International Trade Theory

This paper analyzes how trade can develop between low and high wage countries when there is free trade and when there is protection. In particular, the paper focuses on Pakistani industrial development from the 1950’s and how standard international trade theory relies on specific assumptions about the nature of capital, which may not hold. This, in turn, has specific implications for industrial policy in low wage countries.

The Law and Political Economy of International Trade Agreements

2019 ◽  
Author(s):  
Michael Trebilcock
Keyword(s):  
Developing Countries ◽  
International Trade ◽  
Free Trade ◽  
Comparative Advantage ◽  
Trade Agreements ◽  
Developed Countries ◽  
Preferential Trade Agreements ◽  
Preferential Trade ◽  
Multilateral Trade ◽  
Wide Range

While economists overwhelmingly favor free trade, even unilateral free trade, because of the gains realizable from specialization and the exploitation of comparative advantage, in fact international trading relations are structured by a complex body of multilateral and preferential trade agreements. The article outlines the case for multilateral trade agreements and the non-discrimination principle that they embody, in the form of both the Most Favored Nation principle and the National Treatment principle, where non-discrimination has been widely advocated as supporting both geopolitical goals (reducing economic factionalism) and economic goals (ensuring the full play of theories of comparative advantage undistorted by discriminatory trade treatment). Despite the virtues of multilateral trade agreements, preferential trade agreements (PTAs), authorized from the outset under GATT, have proliferated in recent years, even though they are inherently discriminatory between members and non-members, provoking vigorous debates as to whether (a) PTAs are trade-creating or trade-diverting; (b) whether they increase transaction costs in international trade; and (c) whether they undermine the future course of multilateral trade liberalization. A further and similarly contentious derogation from the principle of non-discrimination under the multilateral system is Special and Differential Treatment for developing countries, where since the mid-1950s developing countries have been given much greater latitude than developed countries to engage in trade protectionism on the import side in order to promote infant industries, and since the mid-1960s on the export side have benefited from non-reciprocal trade concessions by developed countries on products of actual or potential export interest to developing countries. Beyond debates over the strengths and weaknesses of multilateral trade agreements and the two major derogations therefrom, further debates surround the appropriate scope of trade agreements, and in particular the expansion of their scope in recent decades to address divergences or incompatibilities across a wide range of domestic regulatory and related policies that arguably create frictions in cross-border trade and investment and hence constitute an impediment to it. The article goes on to consider contemporary fair trade versus free trade debates, including concerns over trade deficits, currency manipulation, export subsidies, misappropriation of intellectual property rights, and lax labor or environmental standards. The article concludes with a consideration of the case for a larger scope for plurilateral trade agreements internationally, and for a larger scope for active labor market policies domestically to mitigate transition costs from trade.

Justice and Trade

2012 ◽  
Author(s):  
Mathias Risse
Keyword(s):  
Human Rights ◽  
International Trade ◽  
Free Trade ◽  
Trade Barriers ◽  
Trade Theory ◽  
Principles Of Justice ◽  
Gains And Losses

This chapter examines what justice requires for international trade. It considers two problems: first, what follows about trade from the human rights–oriented principles already discussed, and second, whether any new and distinct principles of justice arise out of the fact that we live in a world of multiple states where there is trade across borders. Trade theory supports free trade: barriers like tariffs and quotas obstruct mutually beneficial transactions. Countries should undo them, even unilaterally. The chapter first asks whether there are any independent principles of justice having to do with the distribution of gains and losses from trade, both among and within states. It then explores the question of subsidies and what arguments are available in support of those who ask their government for subsidies. It also explains how talk about justice maps into talk about fairness.

scholarly journals RIVIEW SKEMA ACFTA TERHADAP EKSPOR INDONESIA KE TIONGKOK, HONGKONG DAN ASEAN

2018 ◽  
Vol 1 (1) ◽  
Author(s):  
Made Adnyana
Keyword(s):  
Regression Analysis ◽  
Free Trade ◽  
Comparative Advantage ◽  
Theory Model ◽  
Trade Theory ◽  
New Trade Theory ◽  
Highly Sensitive ◽  
Export Volume ◽  
Early Harvest ◽  
Normal Track

<p>          In addition to the free trade accord of Bali II, Indonesia has also agreed to implement ACFTA with RRChina and Hongkong. Four schemes agreed up on are Early Harvest Program (EHP), Normal Track (NT) Sensitive Track (ST) and Highly Sensitive Track (HST). The  method used in the study is applying  New Trade Theory model, i.e. involving Comparative Advantage determinants, along with regression analysis. The study  focuses on  data on export volume of  1996 up to  2013 on three-monhly basis. The finding of the study is that certain commodities have gained promising export in 2010; steady export growth has been experienced by two commodities numbered as 87 and 27 at the schemes.   The number 26 commodity at the scheme experienced the decline.</p><p><strong> </strong></p><p><strong>Keywords: </strong>ACFTA schemes, exsport from Indonesia, RR China, Hongkong</p>

scholarly journals Putting Ricardo to Work

2012 ◽  
Vol 26 (2) ◽  
pp. 65-90 ◽  
Author(s):  
Jonathan Eaton ◽  
Samuel Kortum
Keyword(s):  
International Trade ◽  
Comparative Advantage ◽  
International Economy ◽  
Trade Theory ◽  
Center Stage ◽  
Ricardian Model ◽  
New Generation ◽  
David Ricardo

David Ricardo (1817) provided a mathematical example showing that countries could gain from trade by exploiting innate differences in their ability to make different goods. In the basic Ricardian example, two countries do better by specializing in different goods and exchanging them for each other, even when one country is better at making both. This example typically gets presented in the first or second chapter of a text on international trade, and sometimes appears even in a principles text. But having served its pedagogical purpose, the model is rarely heard from again. The Ricardian model became something like a family heirloom, brought down from the attic to show a new generation of students, and then put back. Nearly two centuries later, however, the Ricardian framework has experienced a revival. Much work in international trade during the last decade has returned to the assumption that countries gain from trade because they have access to different technologies. These technologies may be generally available to producers in a country, as in the Ricardian model of trade, our topic here, or exclusive to individual firms. This line of thought has brought Ricardo's theory of comparative advantage back to center stage. Our goal is to make this new old trade theory accessible and to put it to work on some current issues in the international economy.

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