Chapter 2: The Mainstream Interpretation of Classical Trade Theories
2.1 INTRODUCTION l Until the construction of the so-called 'new trade theory' beginning from the late 1970s/ different models of trade were (and often still are) typically distinguished from each other according to what inter-country difference is assumed to be initially given in providing an explanation of why international trade takes place. Seldomly, if ever, have these models been differentiated according to the kind of international development process which they can accommodate into their analyses. In almost all cases, there is no development process whatsoever while the focus is largely on static resource reallocation through trade. A development process, should one be incorporated, inevitably entails modifications and alterations of some of the initial inter-country differences in the course of development and trade, and yet these are precisely what most trade models have little or nothing to describe about. The argument in these models is simply, but strictly, one way from inter-country differences to trade. Mutually beneficial results from reallocation of resources called for by trade are guaranteed when certain assumptions are made. 3 Thus, consider the classical trade theories. Technological differences among countries figure prominently in explaining why trade takes place. In the standard framework employed to illustrate the mainstream version of the theories (in which framework it is assumed that labour is the only factorinput and it operates with constant returns to scale), such differences are represented by given differences in the direct labour coefficients. While the trade which arises is shown to be mutually beneficial to the trading...
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