Wednesday, December 6, 2017

Cloth for Wine: The Principle of Comparative Advantage 200 years on: Introducing a new free eBook

Two hundred years ago, with a simple yet profound example about England trading cloth for Portuguese wine, David Ricardo introduced the Principle of Comparative Advantage. In this eBook, leading trade policy analysts examine whether Ricardo’s insights remain valid in a world where services as well as good cross borders as does data and technology, where there is a rising China whose growth is heavily dependent on exports, and in the face of a backlash against globalisation.

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Cloth for Wine: The Principle of Comparative Advantage 200 years on: Introducing a new eBook
Simon Evenett | Professor of International Trade, University of St. Gallen; Research Fellow, CEPR

3 comments:

Jure Jordan said...

I believe that this is misguided debate about causes of why Ricardo's theory does not hold water.
His theory would be right if trade is done in gold and also if traded directly by producers not through state accounting and by fiat money.
The theory, in the real world, shoud be called Comparative Dissadvantage due to imperialistic powers deciding in what currency it is traded in.

MMT should bee studying how use of money is destroying Comparative Advantage benefits of international trade, not talk about trading itself. That whole value of MMT is because it is a study of money and how it interacts with agents, not how agents trade real values and talk about Ricardo is about barter trade. Please, give it up.
WHy there is international trade only in "former" empires money which puts the preassure on state accounting and mechanisms within non-sovereign which can not trade using their own currency?
I believe that this imeprialistic powers that decide what currency is being traded in is what makes sovereignity of a country. It is a whole crux of the sovereignity of money, i do not find anything else making the preassure on sovereign currency but the imperialist powers deciding in whoose currency it can be traded in.

Trading countries that can not use their own currency to trade get themselves into problems by having to borrow from trading partners in order to import. They have to borrow from partner's banks placing themselves into their mercy on interest rates and completely abandon internal monetary policy that their economy needs. Their only monetary policy become only to fix exchange rate as much as possible no matter if their economy suffers and need lower rates.
The problem is that internal rates tightly follow rates for foreign currency borrowing. There is no independent Central Bank that sets the rates, but foreign banks set the rate for that dependent economy.
This is what independent CB really means: Independent to set the interest rates for their own economy needs.

Talking about barter benefits, MMT will alwys loose because the barter itself is always benefitial if on equal footing, but using imperial curencies to trade puts the countries in dependent positions to have rates decided by foreign banks. Only escape is to be export country and even that can quickly change on no fault of the previously exporting country.

I live in such a country that can not use it's own currency to trade and can find the mechanisms of such Comperative dissadvantage.

Tom Hickey said...

Good points. Classical economics, of which Ricardo was a chief formulator, was based on the international settlement system of the time, which was mercantilism. The wealth of a nation was largely determined by its stock of gold (and silver under a bi-metallic system), and the object of trade was to increase that stock. The game was loaded in favor of the more industrial developed countries since productivity was higher owing to technology. But it was not just gold. The more developed country could extract natural resources and agricultural products, too. The advantage for the less developed products was access to manufactured products without having the knowledge and skill, factories and industrial investment.

Neil Wilson said...

comparative advantage fails because you can't turn a dumpster diver into a brain surgeon regardless of how carefully you apply the training.

It's a classic fallacy of composition error. It assumes infinite fungibility.