Chapter 13: Some Concluding Thoughts
13.1 SUMMING UP THE DISCUSSIONS It was pointed out in Chapter 2 that the static classical trade model has earned and retained its place in mainstream trade theories because it is a special case of the two-party exchange the benefit of which is a fundamental premise of mainstream economics. However, there is in that two-party exchange story only static allocation but no process of development. What if production is added to render it a production-and-exchange model? As long as production technologies are assumed to be given and 'well-behaved', and resources are assumed to be fully employed, adding production does not really change anything fundamentally. There are simply additional marginal conditions to be specified in characterising the attainment of Pareto· efficiency, but it is still through exchange - of goods within and between countries, and of factor-inputs between their owners and competitive firms within each country - that efficiency is attained. That also means there is no room in the model for a process of uneven growth and technological development. Although in the static classical model the relatively backward country is, by construction, employing less productive technologies, emphasis is placed on the gains from trade that would nevertheless materialise if that country possesses comparative advantage in producing something. There will indeed be a gap in the per capita consumption levels between the advanced and the backward countries because the relative wage remunerations in the two countries must appropriately reflect the given technological differences. Barring exogenous changes in the given data (namely...
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