Lecture 15. International Trade Theory
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1. Gains from trade
2. Other theories of international trade
3. Protectionism
1. Gains from trade
⑴ Comparative advantage and gains from trade
⑵ Sources of comparative advantage
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① Differences in climate
② Differences in factor endowments
③ Differences in factors of production
○ Heckscher–Ohlin model : A country with an abundant supply of a production factor has a comparative advantage in producing goods that use that factor intensively.
④ Differences in technology
⑶ Complete specialization
① In reality, because there are many factors of production and economic structures differ, incomplete specialization occurs.
⑷ Effects of free trade
① Autarky
② When the domestic price is higher than the world price : Imports. Consumer surplus increases. Producer surplus decreases. Total surplus increases.
③ When the domestic price is lower than the world price : Exports. Consumer surplus decreases. Producer surplus increases. Total surplus increases.
⑸ Additional gains from trade
① Economies of scale : Average cost decreases as production scale increases. Gains from division of labor.
② Learning effects : Production costs decrease as production experience accumulates.
2. Other theories of international trade
⑴ Product life-cycle theory (product life-cycle theory) : Proposed by R. Vernon
① Which country will produce a good is determined by which stage it is in, from the development stage to the mass-production stage.
② Early development : Handled by advanced countries.
② Mass production : Handled by developing countries.
③ Limitation : May be applicable only to manufactured goods.
⑵ Intra-industry trade theory (intra-industry trade theory) : Proposed by P. Krugman
① Intra-industry trade : Trade conducted in the form of buying and selling the same type of goods to each other.
② Why intra-industry trade is possible
○ Because of product differentiation, exports and imports occur simultaneously within the same industry.
○ Even if there is no trade based on comparative advantage, intra-industry trade based on economies of scale is possible.
③ If intra-industry trade occurs, countries with similar conditions have similar economic structures, so a lot of trade occurs between them.
④ Can explain: trade among advanced countries ＞ trade between advanced and developing countries ＞ trade among developing countries.
⑶ Supply-chain trade theory
① As supply chains expand, specific countries begin to take responsibility for each part of the supply chain.
② For example, accounting may be handled in a tax-free nation.
3. Protectionism
⑴ Instruments of protectionism
① Tariffs : In practice, if tariffs exceed 56%, exports cannot go through.
○ In a perfectly competitive market
Figure. 1. Effect of imposing a tariff in a perfectly competitive market]
○ In an imperfectly competitive market
Figure. 2. Effect of imposing a tariff in an imperfectly competitive market]
○ Antidumping duties
○ Countervailing duties
② Import quota (import quota)
③ Voluntary export restriction (voluntary export restriction)
④ Non-tariff barriers (non-tariff barriers)
⑵ Arguments for protectionism
① Preventing unemployment
○ Critique : A trading partner may benefit from another country’s protectionism.
② Benefits of production diversification
③ National defense reasons
④ Need measures corresponding to unfair foreign policies
⑤ Issues of environmental and resource conservation
○ Developing-country firms argue that because environmental regulations are relatively lax, they have price competitiveness.
○ It is argued that free trade depletes developing countries’ resources and pollutes the environment.
○ Critique : It may be “kicking away the ladder” by advanced countries.
⑥ Infant-industry protection argument
○ Critique 1. It is difficult for the government to predict the most promising technologies.
○ Critique 2. If protected from competition, it is difficult to become competitive.
○ In many cases, infant industries are chosen based on political logic.
⑦ Sweatshop labor fallacy (sweatshop labor fallacy)
○ The argument that countries with weak exports end up receiving low wages that make it hard to maintain a livelihood due to free trade.
○ However, it overlooks that they are, in fact, benefiting from trade.
⑶ Efforts toward free trade
① International trade agreements
○ North American Free Trade Agreement (NAFTA)
○ European Union (EU)
② International trade organizations
○ General Agreement on Tariffs and Trade (GATT)
○ World Trade Organization (WTO)
③ Free trade area (free trade area)
④ Customs union (customs union)
⑤ Common market (common market)
⑥ Regionalism (regionalism)
Posted: 2020.11.30 01:42