International economics: Difference between revisions
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===Classical theory=== | ===Classical theory=== | ||
The law of [[comparative advantage]] provides a logical explanation of international trade as the rational consequence of the comparative advantages that arise from inter-regional differences - regardless of how those differences arise. Since its exposition by John Stuart Mill <ref>[http://www.econlib.org/Library/Ricardo/ricP2a.html#Ch.7,%20On%20Foreign%20Trade,%20comparative%20advantage David Ricardo ''On the Principles of Political Economy and Taxation'' Chapter 7 John Murray, 1821. Third edition.(First published: 1817)]</ref> the techniques of neo-classical economics have been applied to it to model the patterns of trade that would result from various postulated sources of comparative advantage. It has invariably been found necessary to adopt extremely restrictive (and unrealistic) assumptions in order to make the problem amenable to theoretical analysis. The best-known of the resulting models | The law of [[comparative advantage]] provides a logical explanation of international trade as the rational consequence of the comparative advantages that arise from inter-regional differences - regardless of how those differences arise. Since its exposition by John Stuart Mill <ref>[http://www.econlib.org/Library/Ricardo/ricP2a.html#Ch.7,%20On%20Foreign%20Trade,%20comparative%20advantage David Ricardo ''On the Principles of Political Economy and Taxation'' Chapter 7 John Murray, 1821. Third edition.(First published: 1817)]</ref> the techniques of neo-classical economics have been applied to it to model the patterns of trade that would result from various postulated sources of comparative advantage. It has invariably been found necessary to adopt extremely restrictive (and unrealistic) assumptions in order to make the problem amenable to theoretical analysis. The best-known of the resulting models, the Heckscher-Ohlin (H-O) model | ||
<ref>[http://internationalecon.com/Trade/Tch60/T60-8.php The Heckscher-Ohlin Theorem]</ref> depends upon the assumptions of no international differences of technology or consumer preferences, no obstacles to pure competition or free trade and no scale economies. On those highly restrictive assumptions, it derives a model of the trade patterns that would arise solely from international differences in the relative abundance of labor and capital (referred to as ''factor endowments''). The resulting theorem states that, on those assumptions, a country with a relative abundance of capital would export capital-intensive products and import labor-intensive products. The theorem proved to be of very limited predictive value, as was demonstrated by what came to be known as the "''Leontief Paradox''" ( the discovery that, despite its capital-rich factor endowment, America was exporting labor-intensive products and importing capital-intensive products <ref>Wassily Leontief, ''Domestic Production and Foreign Trade: The American Capital Position Re-examined'' Proceedings of the American Philosophical Society, vol. XCVII p332 September 1953</ref>) Nevertheless the theoretical techniques used in deriving the H-O model were subsequently applied to alternative sets of assumptions to derive further theorems. | <ref>[http://internationalecon.com/Trade/Tch60/T60-8.php The Heckscher-Ohlin Theorem]</ref> depends upon the assumptions of no international differences of technology or consumer preferences, no obstacles to pure competition or free trade and no scale economies. On those highly restrictive assumptions, it derives a model of the trade patterns that would arise solely from international differences in the relative abundance of labor and capital (referred to as ''factor endowments''). The resulting theorem states that, on those assumptions, a country with a relative abundance of capital would export capital-intensive products and import labor-intensive products. The theorem proved to be of very limited predictive value, as was demonstrated by what came to be known as the "''Leontief Paradox''" ( the discovery that, despite its capital-rich factor endowment, America was exporting labor-intensive products and importing capital-intensive products <ref>Wassily Leontief, ''Domestic Production and Foreign Trade: The American Capital Position Re-examined'' Proceedings of the American Philosophical Society, vol. XCVII p332 September 1953</ref>) Nevertheless the theoretical techniques used in deriving the H-O model were subsequently applied to alternative sets of assumptions to derive further theorems. | ||
Revision as of 12:12, 24 December 2007
International economics is concerned with the effects upon economic activity of international differences in productive resources and consumer preferences, and in the institutions that affect them. It seeks to explain the patterns and consequences of transactions and interactions between the inhabitants of different countries, including trade investment and migration.
International trade
Classical theory
The law of comparative advantage provides a logical explanation of international trade as the rational consequence of the comparative advantages that arise from inter-regional differences - regardless of how those differences arise. Since its exposition by John Stuart Mill [1] the techniques of neo-classical economics have been applied to it to model the patterns of trade that would result from various postulated sources of comparative advantage. It has invariably been found necessary to adopt extremely restrictive (and unrealistic) assumptions in order to make the problem amenable to theoretical analysis. The best-known of the resulting models, the Heckscher-Ohlin (H-O) model [2] depends upon the assumptions of no international differences of technology or consumer preferences, no obstacles to pure competition or free trade and no scale economies. On those highly restrictive assumptions, it derives a model of the trade patterns that would arise solely from international differences in the relative abundance of labor and capital (referred to as factor endowments). The resulting theorem states that, on those assumptions, a country with a relative abundance of capital would export capital-intensive products and import labor-intensive products. The theorem proved to be of very limited predictive value, as was demonstrated by what came to be known as the "Leontief Paradox" ( the discovery that, despite its capital-rich factor endowment, America was exporting labor-intensive products and importing capital-intensive products [3]) Nevertheless the theoretical techniques used in deriving the H-O model were subsequently applied to alternative sets of assumptions to derive further theorems.
Modern theory
The gains from trade
Trade policies
Qualifications and extensions
International Finance
Principles
Practical implications
Finance policies
Globalization
References
- ↑ David Ricardo On the Principles of Political Economy and Taxation Chapter 7 John Murray, 1821. Third edition.(First published: 1817)
- ↑ The Heckscher-Ohlin Theorem
- ↑ Wassily Leontief, Domestic Production and Foreign Trade: The American Capital Position Re-examined Proceedings of the American Philosophical Society, vol. XCVII p332 September 1953