Monday, December 5, 2011

Free Trade Again

So I've been writing a bit more than often on trade issues. One important conclusion of a paper I co-authored a few years ago was that: "absolute advantage, determined ultimately by low costs of production and/or depreciated currencies, seems to be far more important than comparative advantage in the determination of trade patterns. Developing countries that pursue 'neo-mercantilist' policies to enhance the competitive position of their firms may in fact be doing something rational, leading to higher rates of growth and higher levels of productivity that would imply higher living standards for their population. Also, the avalanche of financial crises in the 1990s, shows that the prescriptions of pop liberals were unfounded; and that balance of payments disequilibria are seldom benign and self-adjusting. Crises are cumulative and the costs of adjustment severe. The Asian crisis and the more recent one in Argentina make the point very clear." Interestingly enough since the Argentine crisis in 2001-2, developing countries have grown considerably faster, and rebounded from the Great Recession pretty fast. It has been the advanced economies, that should not have problems with their balance of payments that got stuck. But the causes for that are fundamentally political. The full paper is here (the title should have said only Principle in the singular). Another paper with similar arguments here.

3 comments:

  1. Very nice paper with Jesus Felipe.

    Also, where does the second one appear?

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  2. A book called "Political Economy and Contemporary Capitalism: Radical Perspectives on Economic Theory and Policy," edited by Dawn Saunders, Ron P. Baiman and Heather Boushey, published by Sharpe in 2000.

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