Monday, September 16, 2013

International Trade References

If I amend my paper, I might want to say something about:

  • Bajona, Claustre and Timothy J. Kehoe (2006). Demographics in Dynamic Heckscher-Olin Models: Overlapping Generations Versus Infinitely Lived Consumers, Staff Report 377, Federal Reserve Bank of Minneapolis.
    • My model does not consider transition from autarky to a stationary with-trade equilibrium; this paper does in a model with a somewhat different structure.
    • This paper models dynamics by analyzing intertemporal equilibrium paths. The worth of such analysis is questionable since in any disequilibrium approach to such paths, the initial quantities of capital goods, taken as data in the model, vary. Any time to approach equilibrium is too long.
    • It is clear on the distinction between international trade in financial capital ("bonds" in the model) and international trade in capital goods (intermediate goods in the model).
    • The model could be improved by considering the ambiguity of a given endowment of capital in models with multiple capital goods. Does the given quantity of capital consist of a vector of intermediate goods, as in intertemporal equilibrium, or a numeraire quantity, as in the traditional and textbook HOS model?
    • The model could also be improved by recognizing the impossibility, in general, of classifying commodities as "labor-intensive" and "capital-intensive". Is this issue orthogonal to the issue of factor-intensity reversals in models of international trade?
  • Bhagawti, J. (1971). The Generalized Theory of Distortions and Welfare, in The Generalized Theory of Distortions and Welfare. Considers how the theory of comparative advantage does not justify laissez faire in international trade, given price distortions. Bhagwati was clearly ignorant of the fact that a positive interest rate and the existence of capital goods destroys the case for laissez faire. So he makes arguably incorrect statements: "...for a perfectly competitive system with no monopoly power in trade, ...the economic system will operate with technical efficieny (i..e., on the 'best' production possibility curve...">
  • Brewer, Anthony (1985). Trade with Fixed Real Wages and Mobile Capital, Journal of International Economics, V. 18, Iss. 1-2: pp. 177-186. Contains some neat (counter) examples, either with labor being used to directly produce consumer goods or with a circular structure of production. In other words, the structure of my example is distinct.
  • Dixit, A. and V. Norman (1980). Theory of International Trade, Cambridge Economic Handbooks. This supposedly demonstrates that, without a fixed interest rate distortion, free trade dominates autarky. Do I care about theorems that have no practical application in economics? On the other hand, if they explicitly mention capital and interest rates, I suppose I should reference this.
  • Lipsey, R. G. and Kelvin Lancaster (1956-1957). The General Theory of Second Best, Review of Economic Studies, V. 24, No. 1: pp. 11-32. They use international trade and tariffs as one of their examples. I do not know that they use the phrase "price distortion", or point out that the mere existence of capital goods with a positive interest rate constitutes a price distortion.
  • Parrinello, Sergio (2000). The "Institutional Factor" in the Theory of International Trade: New vs. Old Trade Theories. Comments on Krugman's new trade theory.
  • Prasch, Robert E. (1996) Reassessing the Theory of Comparative Advantage, Review of Political Economy, V. 8, Iss. 1. Is this article fairly summarized as being a criticism of the realism of assumptions?

Do I want to say something about surveys of economists showing their overwhelming support for "free trade"? Do I want to say something about how comparative advantage is an empirical failure in providing a straight-forward explanation of patterns of trade? That is, do I want to say something about the Leontief paradox? Do I need to reference additional textbooks on trade, e.g., Krugman, Obstfeld, and Melitz?

Do I need to even close my numeric example with utility maximization? I have found some economists struggle with the very concept of an open model. Certainly closing the model in a neoclassical manner makes my case quite strongly. I want to ensure that I am claiming merely to produce a simple numeric example, to simplify accepted ideas in the research literature that contradict textbook teaching.


Anonymous said...

Why you think models with different interest/profit rates in different countries are empirically relevant? Under "perfect competition" there should be interest/profit rate equalization, no?

Robert Vienneau said...

My paper on SSRN and this series of posts constitute an internal critique of the theory of comparative advantage. As such, I care that my assumptions match those in widely used and taught models, not that they be empirically relevant.

The theory, ever since Ricardo, makes the assumption that only consumer goods are traded in international markets. Neither capital goods nor finance, in the theory, flows across national borders.

So, in the theory, mechanisms to equalize factor prices across borders must be different than competitive forces within countries.

Maybe my paper ought to mention the falsity of the supposed factor-price equalization theorem.

Anonymous said...

^ Shiozawa, Y. (2007). "A New Construction of Ricardian Trade Theory—A Many-country, Many-commodity Case with Intermediate Goods and Choice of Production Techniques—". Evolutionary and Institutional Economics Review 3 (2): 141–187.

Do you have read this paper? Maybe there that assumption of no trade of capital goods is dropped or relaxed a little?

Anyway my point is, make sure to not do same error of your opponents, and use theories with too many simplifications to advocate policies.

Moreover, i think those who advocate free trade usually do it while thinking that ALL factors should be mobile and thus the profit rate should be equal everywhere.

Anonymous said...

I'm thinking that there is a curious interaction between empirically bad and logically flawed "neoclssical" theory and so called "vulgar economics"...

Basically, all policies advocated by the latter simply do not follow from the former, but many people don't know this and those who know don't care about it...