The Selected Essays of John H. Dunning, Volume I
Chapter 11: What’s Wrong – and Right – with Trade Theory?
* INTRODUCTION What distinguishes international from intranational economic transactions? How much and to what extent do national boundaries matter? Is the globalizing economy eroding such boundaries? Why do we need – if indeed we do need – a separate theory of cross-border trade and direct investment of firms? What is the justification for international economics, or for that matter international business,1 as a distinct area of study? Economics is, if nothing else, a pragmatic social science. Its primary purpose is, or should be, to explain, in the most rigorous way possible, the way in which scarce resources are allocated between alternative uses, and to suggest ways and means of improving this allocation. Some of our braver – but not necessarily wiser – colleagues also engage in predicting future economic events. But, for most of us, we are content to be judged on our ability to explain the real world as it is. The late nineteenth-century economist could hardly have anticipated the supersonic aircraft, the microchip or laser surgery, much less the geopolitical and cultural scenario of the late twentieth century. The happenings of the last century – or even the last two decades – surely confirm that economists must be prepared to modify their paradigms, theories or models to meet the needs of the time. In some areas of economics, creditable progress has been made – particularly in development theory, macro-economics and industrial economics – but in other areas, such changes have been minimal. Relative to the demands placed on economists by changes in the world economic environment,...
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