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Publié par
Nombre de lectures 39
Langue English

Lessons from the past:
an economic history of
the gains from trade
“By increasing the
general mass of by Alecsandra Dragne
productions, [free trade]
or centuries, trade has been one of the most intense
difuses general beneft, topics in public policy. In particular, the debate between
and binds together… free trade and protectionism is almost always accompanied Fby extremely polarized views, drawing in economists, the universal society of
politicians, activists, and unions alike. Free trade has indeed increased nations throughout substantially over the past few decades, largely due to great eforts
the civilized world” to coordinate action on an international scale through agreements
such as the General Agreement on Tarifs and Trade (GATT), and
institutions such as the World Trade Organization (WTO) (Stiglitz and - David Ricardo (1817)
Charlton, 2005). However, free trade improvements are still needed—
for the least-developed countries in particular—since they have
disproportionately less economic and political power than developed
countries to achieve trade policy goals. The interests of small subsets
of the developed world, in particular in the agricultural sector, has
hindered the progress towards increasing free trade, as demonstrated
by the failure of the WTO to make great advances in negotiations
at the Doha Rounds (Stiglitz and Charlton, 2005). We cannot aford
to ignore important lessons learned long ago regarding gains
from trade. The classical economists, writing in the eighteenth and
Canadianwww.fraserinstitute.org Winter 2011 25s t u d e n t r e v i e wnineteenth centuries, provided us with some shield the domestic market from competition.
the most powerful theories on trade benefts Such public policies are essentially attempting
—theories, which have since then proven to “to direct private people in what manner they
be correct. The following paragraphs outline ought to employ their capitals, and must, in
such theories advanced by leading classical almost all cases, be either a useless or a hurtful
economists Adam Smith, David Ricardo, and regulation” (Smith, 1776: 366).
John Stuart Mill.
David Ricardo, born in London at the end of
Douglas Irwin, a highly regarded economist the eighteenth century, has made enduring
who has written extensively on trade policy, contributions to economic thought that have
points out that trade gains—as noted by infuenced economists to this day, particularly
John Stuart Mill—can be categorized as in the realm of trade theory (Spiegel, 1991). His
direct, indirect, and moral and intellectual explanation of trade moves beyond absolute
advantages (Irwin, 2009). The arguments in advantage, to comparative advantage—a
favour of trade, frst developed by Adam Smith theory that has become one of the most
and then expanded by David Ricardo, can be powerful and long-lasting arguments in favour
identifed as direct advantages of trade. Smith, of free trade. Comparative advantage was
heralded as the father of modern economics, explained by Ricardo using a simplifed model
argued that foreign trade plays an important of the world that contained two countries
role in the economy, as it creates a market (England and Portugal), producing and
for goods exceeding domestic demand. consuming two goods (wine and cloth). Let us
Smith strongly emphasized the principle of assume that England could produce one unit of
absolute advantage in his free trade theory. cloth for one year with 100 labourers and one
He explained that trade allows for resources unit of wine with 120 labourers, while Portugal
in production to be used more efciently needs 90 labourers to produce one unit of
through specialization according to each cloth and only 80 labourers to produce one
country’s absolute advantage, thus creating a unit of wine (Ricardo, 2004). Although Portugal
higher national income than would have been has an absolute advantage in both goods,
observed with trade restrictions
(Spiegel, 1991). More importantly,
Smith’s view adamantly states that Adam Smith, the father of modern economicsgovernment regulation of imports
is undesirable, as such actions
Canadianwww.fraserinstitute.org Winter 2011 26s t u d e n t r e v i e wRicardo showed us that the two countries can a country implicitly increases—this process,
still fnd it advantageous to trade. The question therefore, underlines the indirect advantages
here is “how?” Specialization according to of trade. Irwin emphasizes two important
comparative advantage is the answer. Portugal ways in which international trade spurs
has a more pronounced advantage in the productivity growth: by enabling the transfer
production of wine, and England has less of of technologies that promote productivity,
a disadvantage in the production of cloth. and by raising the level of competition.
Therefore, by specializing in their comparative Technological progress can come through
advantages, the two countries can beneft the import of capital goods that embody the
greatly from trading. By emphasizing the fruits of research and development eforts
benefts of specialization and exchange, (Irwin, 2009). It is crucial to note here that
1Ricardo demonstrates that international trade certain knowledge is a public good. Being
improves efciency, promoting increased more open to international trade will provide
profts and a higher standard of living, as more a country with more opportunities to increase
commodities are made available (Spiegel, productivity through knowledge spillovers. In
1991). The theory of comparative advantage terms of competition promoting productivity,
remains today as one of Ricardo’s greatest international trade works by decreasing the
legacies as an economist—and rightly so, as market power of companies in the economy.
it explains how even developing countries With competition arising from the country’s
stand the chance to gain from trade on the trading partners, in addition to the domestic
international market. market, frms are pushed to become more
efcient in their
Another direct advantage of free trade is productive processes.
access to a greater variety of goods. Having the John Stuart Millability to choose from more goods increases a In addition, frms
society’s well-being. In addition, greater variety planning on entering
is crucial for producers as well, in the form of the economy are more
contributions in outlining the indirect specialized intermediate goods necessary for a exposed to risks with
more varied and afordable production process advantages of trade. (Spiegel, 1991). Mill the new international competition; therefore,
suggests that trade essentially augments the (Irwin, 2009). often companies that are highly productive
size of the market and broadens its scope, will venture to enter. As opposed to direct
thus increasing productivity (Irwin, 2009). With Conversely, John Stuart Mill, an intimate friend advantages of trade, productivity gains are
higher productivity, the standard of living of of Ricardo and seminal fgure in philosophy, harder to measure. However, these indirect
politics, and economics, made important gains are highly important, since they show
Canadianwww.fraserinstitute.org Winter 2011 27s t u d e n t r e v i e wthat free trade contributes immensely to and protectionism should have been settled Fund Inc. <http://oll.libertyfund.org/index.
economic growth and standard of living long ago—the facts are all there. The benefts php?option=com_staticxt&staticfle=show.
increases. of international trade are immense, and our php%3Ftitle=237&Itemid=99999999 >, as of
current era characterized by globalization, January 14, 2011.
On the third category of gains from trade, cooperation and interdependence between
intellectual and moral advantages, Mill the leading countries of the globe should Spiegel, Henry William (1991). The Growth of
was not quite as clear as to what they not fall prey to short-sighted policies of trade Economic Thought. 3rd ed. Duke University Press.
constituted. However, Irwin elaborates on regulation. Opponents of free trade should Stiglitz, Joseph E., and Andrew Charlton (2005). Fair
a variety of viable proponents, including start listening to reason, so that constructive Trade For All: How Trade Can Promote Development.
the idea that international trade promotes debate can be carried forward to other crucial Oxford University Press .
peace through interdependence, as well as public policy and development issues.
better understanding and cooperation. Most
importantly for the developing world perhaps, Note Alecsandra Dragne is in is that international trade seems to promote
her fourth year at UBC as democratic regimes and institutions. Although 1 A public good is defned as a good that is non- an international relations these advantages are the most difcult to rivalrous (one person’s consumption of the good does major and economics quantify, more and more creative studies are not impede another person’s consumption of it), and minor, specializing in shedding light on these invaluable nonmaterial non-excludable (a person cannot be excluded from international economic gains from trade (Irwin, 2009). using the good). See Veldhuis and Mackenzie, 2010. development. She has
been a Fraser Institute Some of the most revered economists of References intern in the Development our time, men of vision such as Adam Smith,
department since David Ricardo, and John Stuart Mill, advanced Irwin, Douglas A. (2009). Free Trade Under Fire. September 2010. powerful arguments supporting free trade Princeton University Press.
that still hold true today. I do not propose
that free trade is the only answer to economic Ricardo, David (2004). The Works and
growth; however, it is a crucial part of our Correspondence of David Ricardo. In On the
economies and an indispensable tool in the Principles of Political Economy and Taxation.
efort to help impoverished countries develop. Piero Srafa, and M. H. Dobb (eds.). Liberty Fund
As Joseph Stiglitz, Economic Nobel Prize Inc.
winner, and co-author Andrew Charlton (2005)
argue, international trade is not sufcient, Smith, Adam (1776). An Inquiry Into the
but it is necessary for the economic growth of Nature and Causes of the Wealth of Nations
developing countries. The fght between trade (Cannan ed.). Vol I. Indianapolis: Liberty
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