On The Loss From Trade

Capital-Labor Ratio for a Country Engaged in International Trade

I have made a new paper available at my SSRN site. Here is the abstract:

Consider models of international trade in which capital goods are produced, not given as an unproduced endowment. A positive interest rate, in such a model, acts as a price distortion. Consequently, the gains of trade, when comparing stationary states with and without trade, can be negative. Previous authors have drawn this result in models with production depicted as a circular process, even though their point does not depend on this modeling choice. The principle contributions of this paper are to provide a demonstration of the possibility of such a loss from trade in a simplified model with "a one-way avenue ... lead[ing] from 'Factors of production' to 'Consumption goods'" and to illustrate the model with a concrete numerical example. The theory of comparative advantage is not sufficient to justify the advocacy of free trade in consumer goods, even under textbook assumptions.

I have not yet decided where to submit this paper.