Can Ricardian Model Really Explain Trade?

This paper aims to analyse the international trade in the real world by applying the Ricardian trade theory. In doing this, simple comparative advantage assumptions are used to examine trading of palm oil and rice between Malaysia and Vietnam. By using this theory, it is proven that international trade takes place because of efficiency to produce exported product. A country will export products that use its abundant and cheap factors of production and import products that use its scarce factors. Various empirical evidences of previous studies are als o used to discuss the importance of the Ricardian model. However, it is also highlighted in the paper that the Ricardian model could be misleading as it has several limitations that restrict its usefulness.

Industrial Policy

The aim of this chapter is to give a brief overview of the historical arguments that have been used to argue for industrial policy in its widest sense, that is, that what a nation (or region) specializes in producing may be of key importance to the wealth and welfare of its inhabitants. Historically it has been generally agreed that symmetrical trade—trade in similar goods between nations at similar levels of technological development—has tended to be beneficial to both trading partners. In these cases, employing Ricardian trade theory has not been detrimental to the trading partners. This chapter explains the situations when Ricardian trade theory is not beneficial to one of the trading partners, and—at the same time—the economic mechanisms which have been identified as making industrial policy desirable. That manufacturing matters has, in various forms, been presented as a main reason for industrial policy, at least since England’s import-substitution policies during the 1400s: adding value to English wool by spinning it into woollen cloth and garments. This was mainly achieved by raising export duties on raw wool, making English wool cheaper for domestic manufacturers than for foreign ones. However, the reasons why manufacturing matters have varied. And that understanding has gone from intuitive inferences to scientific evidence. This chapter will historically present this process and the most common arguments for industrial policy over time.

Trade matrices for trade negotiators, applied to ‘Brexit’ and ‘NAFTA’: an approach

This paper puts forth a new scholarly approach to trade negotiations, for practitioners of international agreements, or simply to business students attempting to understand Ricardian trade theory. The paper hypothesizes that matrices can provide a simpler conceptual framework for considering Ricardo’s comparative advantage, especially when multiple goods and multiple countries are involved, in order to determine which countries should produce which goods. Numerous theoretical examples are presented, singularly, and jointly, as are different possible flaws and assumptions, additional applications, and alternative uses of the matrices, such as employing matrices to increase production of certain goods needed during crises or shortages. The article also argues that “terms of trade” should not be “assumed” in trade models but be based upon indifference curves, and addresses other influencing factors such as neoclassical changes in utility or in production. Found valid, the paper applies this method of trade simplification to pressing international situations, the question of “Brexit,” the sobriquet for the United Kingdom’s effort to withdraw from the European Union, which creates interesting possibilities for new trade deals, and the renegotiation of the North American Free Trade Agreement (NAFTA). The conclusion conceptually compares bilateral and multilateral trade, singularly, and with all countries together.

Immigration, Trade, and Firm Mobility: A Political Dilemma

This chapter argues that trade, firm mobility, and productivity change firms' preferences over immigration and their willingness to support low-skill immigration, which makes it harder for policymakers to support low-skill immigration, leading to restrictions on low-skill immigration. It first considers the political dilemma arising from immigration policy in the face of greater globalization by drawing on both classic Ricardian trade theory and “new” new trade theory before discussing alternative explanations of immigration policy. It argues that trade openness and firm mobility decrease political support for low-skill immigration in wealthy countries. It also examines firms' lobbying for immigration as the foundation of the political dilemma faced by policymakers. Finally, it analyzes the empirical implications of the argument for firms and sectors, policymakers, and immigration policy.