tag:blogger.com,1999:blog-26706564.post919000138858704196..comments2024-03-25T07:51:47.758-04:00Comments on Thoughts On Economics: Hoisted From Comments: Query On Foreign TradeRobert Vienneauhttp://www.blogger.com/profile/14748118392842775431noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-26706564.post-24583119388610278252008-01-13T19:30:00.000-05:002008-01-13T19:30:00.000-05:00Thanks for the de Vroey reference.Given my focus, ...Thanks for the de Vroey reference.<BR/><BR/>Given my focus, it's no surprise I like Petri's book. I think what a definitive Sraffian critique of G.E. theory looks like is still open.<BR/><BR/>Some time ago, I <A HREF="http://robertvienneau.blogspot.com/2006/08/textbooks-for-teaching-non.html" REL="nofollow">mentioned</A> textbooks treating the Cambridge Capital Controversy. Walsh and Gram is in this list, and some of the others try to get at the nature of Sraffa's alternative theory of value and distribution.<BR/><BR/>I worry that this sort of list delays your thesis rather than helps.Robert Vienneauhttps://www.blogger.com/profile/14748118392842775431noreply@blogger.comtag:blogger.com,1999:blog-26706564.post-23533426818075712592008-01-08T14:54:00.000-05:002008-01-08T14:54:00.000-05:00Thanks for the comments on this section Robert and...Thanks for the comments on this section Robert and sorry for a belated answer (the New Year and related adjustments provide some background towards understanding the reason for this late answer). <BR/><BR/>I have read Ha-Joong Chang's Kicking Away the Ladder, and found it a good informative read. His work is more general on the merits of foreign trade and protectionism, so for my current analysis it is not that useful. But I do recommend it to anybody interested in trade policy.<BR/><BR/>I haven't yet got my hands on the New Palgrave. I've read some criticism from Mark Blaug however that this piece of work is generally biassed towards the Sraffian account of General Equilibrium theory. I have to say though that I do not yet understand how or whether the Sraffian strand of GE has been taken up by applied CGE economists. I've got a book from Walsh & Gram "Classical and Neo-Classical Theories of General Equilibrium", which might help to clear up this matter.. <BR/><BR/>As for the other references, I have to take a look. <BR/><BR/>I share the impressions here that H-O is applied on top of the edifice of the Walrasian GE-framework, although I yet do not know this for sure. Whether the applied CGE-analysis is then basically akin to H-O with more than two countries, and factors is also something I need to dig up. <BR/><BR/>On the instant nature of the Walrasian equilibrium adjustments and offshoots into steady states I propose reading an article called Equilibrium and Disequilibrium in Walrasian and Neo-Walrasian Economics by Michel de Vroey in the Journal of History of Economic Thought (2002). This paper clarifies some of the conceptual issues. <BR/><BR/>Another more complicated and mathematically oriented work is Fabio Petri's "General Equilibrium, Capital and Macroeconomics". I would generally be interested to know what people think of this Magnum Opus. It took me quite a long time to understand his point, but when it clicked, it has helped to contextualise other literature in the GE-fold.Blogus Pokushttps://www.blogger.com/profile/04755361609209551237noreply@blogger.comtag:blogger.com,1999:blog-26706564.post-68241223768114430882008-01-03T18:15:00.000-05:002008-01-03T18:15:00.000-05:00Peter,Thanks for the suggestions. I'm downloading ...Peter,<BR/><BR/>Thanks for the suggestions. I'm downloading the more strongly recommended piece.Robert Vienneauhttps://www.blogger.com/profile/14748118392842775431noreply@blogger.comtag:blogger.com,1999:blog-26706564.post-80743827743902068292008-01-03T12:41:00.000-05:002008-01-03T12:41:00.000-05:00I'd particularly recommend the Milberg entry on Ke...I'd particularly recommend the Milberg <A HREF="http://milbergw.files.wordpress.com/2007/04/say-in-open-economy.pdf" REL="nofollow">entry</A> on Keynes' rejection of the theory of comparative advantage. However, it's important to note that one can reject traditonal approaches to comparative advantage and still oppose protectionism. See Milberg & Jan Kregel's comment in the <A HREF="http://www.ft.com/cms/s/1/2cf6dba2-3c3b-11db-9c97-0000779e2340.html" REL="nofollow">Financial Times</A>.Peter Hhttps://www.blogger.com/profile/16487445526366418524noreply@blogger.comtag:blogger.com,1999:blog-26706564.post-73818898590231766872008-01-03T12:04:00.000-05:002008-01-03T12:04:00.000-05:00Robert,You might appreciate these pieces by Willia...Robert,<BR/><BR/>You might appreciate these pieces by William Milberg <A HREF="http://milbergw.files.wordpress.com/2007/04/say-in-open-economy.pdf" REL="nofollow">"Say’s Law in the Open Economy: Keynes’s Rejection of the Theory of Comparative Advantage”</A> & <A HREF="http://milbergw.files.wordpress.com/2007/04/globalization.pdf" REL="nofollow">an entry on Globalization in the <I>Elgar Encylcopedia on Post-Keynesian Economics</I></A>.Peter Hhttps://www.blogger.com/profile/16487445526366418524noreply@blogger.comtag:blogger.com,1999:blog-26706564.post-54132740740543722632007-12-31T04:13:00.000-05:002007-12-31T04:13:00.000-05:00YNS!, of course you want to compare steady states ...YNS!, of course you want to compare steady states but my point was that there's nothing stopping you from having transitional dynamics towards that steady states and have that steady states imply whatever quantity of capital.<BR/><BR/>Back in my day (2 years ago ;-) we used a 2 country Solow-ish model and you had all the traditional conclusions. I'll try to dig that up and make a blog post out of it.Gabriel Mhttps://www.blogger.com/profile/18020403326536585795noreply@blogger.comtag:blogger.com,1999:blog-26706564.post-37511663118787009332007-12-30T15:37:00.000-05:002007-12-30T15:37:00.000-05:00"Paul Davidson's book , JOHN MAYNARD KEYNES (Palgr..."Paul Davidson's book , JOHN MAYNARD KEYNES (Palgrave/Macmillan, 2007, pp. 128-137.) For comapartive advantage to hold and be applicable requires the following assumptions : (1) full employment before and after trade in all trading partners, (2) no mobility across national borders for either capital or labor."<BR/><BR/>I do respect Paul Davidson so I'm guessing that this is a misreading. These two conditions are at best sufficient, not necessary. If 1) fails it is true that it may be possible for a small tariff to increase welfare (this is why Brad DeLong always caveats all his support of free trade with "as long as the Fed is doing its job"). However this isn't really that CA isn't applicable. It's just that other factors can matter more sometimes.<BR/>Wrt 2) If capital is mobile across countries then it will move until its marginal product is equalized (we're working within the neoclassical model here) and the only productivity differences between countries will be due to technology. But as long as technologies differ, comparative advantage still applies. Similarly if only labor is mobile. If both are perfectly internationally mobile then it's possible that all productivity differences are eroded - and in that case there's no CA and no reason to trade.<BR/><BR/>So note that while there's some truth to 1), 2) is essentially irrelevant and only applicable (in the sense that it results in 'no CA, no reason to trade' - but then why do you care?) if 2a) labor is PERFECTLY mobile, 2b) capital is PERFECTLY and 2c) there are no TECHNOLOGICAL differences. In contrast to 1) and 2) being sufficient and not necessary, 2a), 2b), 2c) are all necessary for 2) to matter (in an irrelevant sort of way).YouNotSneaky!https://www.blogger.com/profile/06378267534638281151noreply@blogger.comtag:blogger.com,1999:blog-26706564.post-16602969483502937622007-12-30T15:29:00.000-05:002007-12-30T15:29:00.000-05:00Well, in the HO model endowments of K and L are ta...Well, in the HO model endowments of K and L are taken as given so in that sense it looks like the static AD model. Of course you can allow for capital accumulation and even for changes in L (Malthusian models) but then things get a lot more complicated with the possibility of immiserizing growth and so on (dynamic competitive advantage).<BR/><BR/>In fact, I'm pretty sure when people talk about forecasting the effects of trade agreements using CGE models they're talking (mostly) HO.<BR/><BR/>To anon's question about when welfare can go down in those models - that'd probably be the optimal tariff literature where you don't assume that a country is 'small' relative to the world. In general these tariffs are estimated to be very low and in some cases even negative (i.e. you should be subsidizing imports).<BR/><BR/>To Robert's comment that "comparative advantage doesn't explain the pattern of trade" - that's a bit of a silly thing to say. Of course if it's modified to "comparative advantage doesn't explain ALL pattern of trade" then that's fine. After all, what do you think Venezuela's #1 export is? But it could very well be that a decreasing share of world trade is explained by CA today.<BR/><BR/>As far as the New Trade Theory. Well, it's all based on increasing returns to scale. Hence it is substantially different from traditional CA models. In fact it is sort of antithetical to it. CA results from specialization. NTT trade results from larger market size. Whether Krugman deserves all the credit here that he gets is another question.<BR/><BR/>Oh yeah. In HO with more than two countries, CA may become indeterminate. In general the number of countries vs. number of goods matters. Obviously.<BR/><BR/>I would be interested in seeing how the Keynesian multiplier (for existence of which there is even less empirical support than for CA based trade) can explain the pattern of trade. I can sort of see how it would explain the volume of trade but "pattern"? Do various goods have different multipliers?YouNotSneaky!https://www.blogger.com/profile/06378267534638281151noreply@blogger.comtag:blogger.com,1999:blog-26706564.post-81660168857778528032007-12-29T15:39:00.000-05:002007-12-29T15:39:00.000-05:00Regarding the inapplability of the law of comparat...Regarding the inapplability of the law of comparative advantage to real world trading patterns, see Paul Davidson's book , JOHN MAYNARD KEYNES (Palgrave/Macmillan, 2007, pp. 128-137.) For comapartive advantage to hold and be applicable requires the following assumptions : (1) full employment before and after trade in all trading partners, (2) no mobility across national borders for either capital or labor.<BR/><BR/>If there is not full employment and capital is free to cross national borders, as those who promote free international capital flows demand, then trade will depend on absolute cost advantge -- not comparative advantage (as demonstrated in the above cited pages of Davidson's book).<BR/><BR/>Except fr natural resources most cost advantages depend on relative wages of workers in the trading countries-- e.g., wage differentials between China India and the USA. <BR/><BR/>Absolute cost advantage predicts that jobs will be outsourced to the lowwage country (as long as technology is the same crosss borders -- and with multinational corporations technology is easily transportable over borders -- as long as transportation and communication costs are not sufficient to offset the difference in money wages when wages in each country is expressed in a common currency.<BR/><BR/>We have already seen this affecting most US blue collar jobs -- as our industrial base disappears, as well as call centers in India, as well as white collar technical jobs like computer programers in Asia, <BR/>Thus in the long run, this means for the US that all jobs can be outsourced except for those that require personal attendance (e.g., waiters, newspaper deliverers, health care attendants, college professors, etc.), or military defencse industry jobs, while the average wage of American workers sinks to the level of a Chinese . See Krugman's article on Trade in the NY TIMES, December 28. where he predicts the continual collapse of US wages. [Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-26706564.post-58910276469973741972007-12-29T11:09:00.000-05:002007-12-29T11:09:00.000-05:00Robert, could you please elaborate on this?>> "In ...Robert, could you please elaborate on this?<BR/><BR/>>> "In the Arrow-Debreu model, the initial endowments of all commodities are taken as given data. This makes it a very short run theory."<BR/><BR/>That initial endowments are given is true of ANY more. Would you say that the Solow growth model, to pick a traditional example, is short-run?<BR/><BR/>As a first-order approximation I would say that if by "long run" you mean steady states, then model will generally converge to some steady state or another, regardless of the initial endowments.<BR/><BR/>How can a model that gives us all prices and quantities for all future time periods and world states be "short-run"?<BR/><BR/>Beyond that, a few thoughts on "free trade" and why it's justified...<BR/><BR/>1) Because in a free society you justify restrictions not freedom, freedom of (international) association being at stake. In other words, it's up to protectionists to justify their policy proposals.<BR/><BR/>2) Larger markets, less market power.<BR/><BR/>3) Division of labor. Free trade might allow smaller economies to reach low-cost production scales.<BR/><BR/>4) You can eliminate most or all (real or imaginary) ills of "free trade" with fiscal policy so don't throw the baby with the bath water.<BR/><BR/>Have an awesome 2008!Gabriel Mhttps://www.blogger.com/profile/18020403326536585795noreply@blogger.com