Tuesday, January 19, 2010

International Trade Theories

My head is reeling - I'm just out of a three-hour session dedicated to mathematical derivations of three theorems under International Trade Theory:

  • The Heckscher-Ohlin (Factor-Proportions) Model
  • The Stolper-Samuelson Theorem
  • The Rybczynski Theorem

As is usual, my enthusiasm & interest diminished as soon as the discussion moved from the world of real-life, practical problems to the world of 'proof by equations'. What was unusual, however, is that I felt guilty about not paying attention because the logic behind the proofs did look interesting until I lost track and felt sleepy.

I needed to get back to brasstacks, and thankfully there is a website that deals with theory without losing sight of practice.

About International Trade, it said, "lessons that are most interesting and valuable are those that teach something either counterintuitive, or at least contrary to popular opinions". Here are some counterintuitive points -

1. The main support for free trade arises because free trade can raise aggregate economic efficiency.
2. Trade theory shows that some people will suffer losses in free trade.
3. A country may benefit from free trade even if it is less efficient than all other countries in every industry.
4. A domestic firm may lose out in international competition even if it is the lowest-cost producer in the world.
5. Protection may be beneficial for a country.
6. Although protection can be beneficial, the case for free trade remains strong.

More at -
* Intl. Trade Theory & Policy by Steven M. Suranovic - http://internationalecon.com/Trade/tradehome.php

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