2022resume修改Modern Trade Theory
Modern Trade TheoryReferencesAppleyard, D. and Field, A. (2005) International Economics, McGraw-Hill Ch. 9 and 10Husted, S. and Melvin, M. (2007), International Economics, Addison-Wesley Ch. 5Krugman, P. and Obstfeld, M. (2006) International Economics Addison-Wesley Ch. 6
ArticlesHelpman, E. (1999), “The Structure of Foreign Trade”, Journal of Economic Perspectives, 13(2), pp.121-144.Smith, A. 1994. "Imperfect Competition and International Trade," in Surveys in International Trade. D. Greenaway and L. A. Winters eds.
OutlineTraditional TheoryThe Leontief ParadoxImperfect CompetitionGains from TradeTraditional Theory…Focuses on comparative advantage Comparative advantage is driven by either:Technology (Ricardo)Factor Endowments (H-O)Therefore traditional theory focuses on differences between countries as the basis for tradeLeontief ParadoxHeckscher-Ohlin model suggests that a capital rich country would export capital intensive goods and import labour intensive goodsThe U.S. is shown to have a high capital-labour ratioTherefore we would expect the U.S. to export capital-intensive goods and import labour intensive goodsIn 1953 Leontief published a study that found U.S. exports were less capital intensive than U.S. imports This surprising result is know as the Leontief ParadoxLeontief Paradox – Why?Productivity of labourUS may be labour abundant if labour productivity is relatively high (i.e. factors are not homogeneous)High productivity is associated with education and organisation but this would also affect the productivity of capitalConsumption biasUS consumption tastes may be biased to capital-intensive commodities (i.e. tastes are not the same)Consumption patterns between countries are diverse but..Consumption patterns in some major trading partners are similarFactor intensity reversalsHeckscher-Ohlin assumes one commodity is relatively capital intensive at all factor price ratios This may not be true if one commodity has greater opportunity for factor substitution than the othere.g. opportunities for factor substitution may be greater for agriculture than for industrial productsTariffs and non-tariff barriersFree trade assumption does not hold – all countries have some tariffs and other barriersUS in particular protects labour intensive import competing industries to reduce unemployment Natural resourcesLeontief’s results were based on a two factor model – what about a third factor of natural resources?Although the US has considerable natural resources its high consumption levels means that it uses themUS may therefore no longer be relatively abundant in natural resources and natural resource imports may be relatively capital intensive#p#分页标题#e#Human capitalLabour is not homogeneous because of education and training (human capital)US may be skill abundant and export skilled labour intensive products
Mixed empirical support for both Ricardian and H-O modelsMuch of world trade is between industrialised countries with relatively similar factor endowmentsThere is also the existence of economies of scale internal to firms in many industriesHigh levels of intra-industry tradeNot obvious that the huge expansion in world trade has been accompanied by serious distributional problems (although should note MFA, CAP, protection of steel industry etc.)Clear absence of perfect competition in some industriesImperfect competition: an overview1. Scale economies trade.
a) external economies of scale, consistent with perfect competition
b) internal economies of scale and monopolistic competition “economic geography”
2. Imperfect competition trade reciprocal dumping Note: moving away from the traditional paradigm involves making assumptions about:the nature of competitive interactionentry into the industrywhether products are homogeneous or differentiatedwhether markets are segmented or integrated
Scale EconomiesAssumptions:symmetric firms each producing different varieties of goodsincreasing returns to scale at the firm levelConsumers love (value) varietyMonopolistic competitionOutcomes:variety effect: welfare has risen because consumers have access to a greater variety of commodities.economies of scale effect: if the elasticity of demand depends on the number of firms, the greater the no. of firms (products) the more elastic demand. Now when we open up to trade there are more firms competing hence the elasticity of demand rises.Markup of price over marginal cost is thus reduced and some firms are forced to exit from the market. There are now less firms supplying the market, remaining firms have moved down their average costs curvepro-competitive effect: opening up to trade increases the degree of competitive interaction
Reciprocal DumpingIn the reciprocal dumping model, trade takes place despite the fact that exactly the same good is being shipped between both countriesIn this model it is the very presence of imperfect competition which drives tradeprior to trade each firm has monopoly power in the domestic market and therefore sets P=MR>MCthe foreign firm observes this and realises that it could sell a unit abroad at a slightly lower price, but where that price is still greater than its MC.This is profit maximising because it is not impacting on MR in its domestic marketBoth firms realise this and thus have an incentive to sell in each other’s market
Assuming imperfect competition gains from trade arise from…#p#分页标题#e#efficiency gains as firms take further advantage of economies of scalecompetitive gains from an intensification of competition (more firms competing in the same market, therefore decline in price cost mark-ups)(iii) variety gains as the number of product varieties available for consumption increases
SummaryWith imperfect competition trade takes place:either because of imperfect competition = reciprocal dumping model. In this model the goods produced by the firms are absolutely identical or where firms produce differentiated products, under conditions of economies of scale, and where consumers love variety. In this set up you need imperfect competition to support the equilibrium. Both models will lead to trade in “similar” products, even though all countries in the model are identical.Trade leads to welfare gains, not through comparative advantage which exploits differences between countries but through:increase in competitionincreased exploitation of economies of scaleincreased variety
