Tài liệu TRADE:INSTITUTIONS AND IMPACT- Why and how do countries trade? pdf

Fulbright Economics Teaching Program
2006-2007
Trade: Institutions and impact
Ari Kokko 1
Lecture 1
Ari Kokko
TRADE:
INSTITUTIONS AND IMPACT
Why and how do countries trade?
Outline and schedule
Ari Kokko
Why do countries trade?
•
Get goods and services that cannot be
produced at home
•
To accumulate gold
•
Get cheaper goods and services
•
Efficiency and growth
•
Different theories and policies for different
motives
Fulbright Economics Teaching Program
2006-2007
Trade: Institutions and impact
Ari Kokko 2
Lecture 1
Ari Kokko
Gains from trade:

the simple view
•
Clear gains if countries are strong in
different areas: absolute advantages
•
Less obvious - but undisputed - gains even
if one country is “better” in all areas:
comparative advantages
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Absolute advantages

Motorbikes

Rice
Vietnam 20 10
Laos 10 20

Labor requirements for one unit of output
Fulbright Economics Teaching Program
2006-2007
Trade: Institutions and impact
Ari Kokko 3
Lecture 1
Ari Kokko
Comparative advantages

Motorbikes

Rice
Vietnam 20 10

Laos 100 20

Labor requirements for one unit of output
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Comparative advantages

Trade is profitable as soon as relative prices
differ between countries

Why are there differences in relative prices?

Classical and neoclassical theory:
– technology differences (Adam Smith 1776 /
David Ricardo 1815)
– differences in factor endowments (Heckscher-
Ohlin 1930)
Fulbright Economics Teaching Program
2006-2007
Trade: Institutions and impact
Ari Kokko 4
Lecture 1
Ari Kokko
Policy conclusions:
neoclassical theory

Free trade and specialization is optimal
 pattern of comparative advantages is given by
nature
 all industries are equally “desirable”


International framework should support
development of free trade
 unilateral liberalization more difficult because
of protectionist interest groups and lack of
coordination
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Institutions:
Bretton-Woods solutions

Four cornerstones of international economy
after WWII to support growth of free trade
– International Bank for Reconstruction and
Development
– International Monetary Fund
– International Trade Organization
– Price stabilization fund
Fulbright Economics Teaching Program
2006-2007
Trade: Institutions and impact
Ari Kokko 5
Lecture 1
Ari Kokko
But why is world trade
not free?
•
Protectionism leads to higher prices, lower
consumption, and lower welfare both at
home and abroad...
•
…so why is there still a lot of

protectionism?
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Unequal gains from trade
at the micro level
•
Interest groups matter: trade benefits some
groups but hurts others
• trade raises the rewards of a country’s abundant
factor of production and reduces the rewards of
the scarce factor (Stolper-Samuelson theorem)
• the groups that lose may oppose free trade
• the transition to free trade may have
troublesome social consequences