Economic Reform in Asia

Economic Reform in Asia

China, India, and Japan

Sara Hsu

Economic Reform in Asia compares and analyzes the reform and development patterns of China, India, and Japan from both historical and developmental perspectives. Sara Hsu specifically focuses on China’s reform and opening-up in 1979, India’s accelerated liberalization in 1991, and the outset of the Meiji Restoration in Japan in 1878. This detailed overview of growth patterns in Asia’s largest economies is invaluable, especially in its determination to understand which development policies work, what role institutions play in development, and what issues may arise during said development.

Chapter 10: Trade in China, India, and Japan

Sara Hsu

Subjects: asian studies, asian development, asian economics, economics and finance, asian economics


Trade theory goes back to Adam Smith in 1776 and to David Ricardo in 1826. These theories developed the concept of free trade and stressed the advantages of trade. While Smith laid the foundations of the theory, Ricardo developed the theory of comparative advantage (as discussed in Chapter 2) that we continue to use today. Mills and Marshall both contributed to trade theory. However, the theory put forward by Eli Heckscher and Bertil Ohlin became a dominant theory in the 1930s. This theory was based on the idea of opportunity cost, or utility of foregone consumption. Heckscher–Ohlin theory states that countries will import products whose factors of production are scarce and export products whose factors of production are abundant. This theory viewed free trade as Pareto optimal, or optimizing of production, consumption, and exchange for two trading nations at equilibrium (Sen 2010). Heckscher–Ohlin theory placed resource endowments of nations as the determining factor of international trade. Consumer preferences determine commodity and factor prices. Then, with identical consumer preferences between two trading nations, factor endowments determine how price competitive traded goods are.

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