Endogenous growth and international trade

International trade

Externalities, markets, and government policy

Before the work of Ronald Coase, economists argued that externalities-unpriced benefits or costs-constituted the main exception to the rule that Adam Smith's invisible hand will efficiently allocate resources. Coase showed that externalities may or may not require a government solution, depending on the institutional setting of the problems and the size of transaction costs. Moreover, even in the absence of externalities, market transactions require low transaction costs. Firms exist to economize on those costs. In shifting the terms of the debate, Coase single-handedly moved economics from presuming specific roles for government action to a more neutral position requiring detailed analysis. In this article, Roy Ruffin explains Coase's contribution to understanding the role of government.Expenditures, Public

The nature and significance of intra-industry trade

In this article, Roy Ruffin gives an overview of intra-industry trade for the generalist. Intra-industry trade represents international trade within industries rather than between industries. Such trade is more beneficial than inter-industry trade because it stimulates innovation and exploits economies of scale. Moreover, since productive factors do not switch from one industry to another, but only within industries, intra-industry trade is less disruptive than inter-industry trade.Trade ; Industries

Quasi-specific factors: worker comparative advantage in the two-sector production model

International trade ; Labor productivity

Human capital externalities, trade, and economic growth

Human capital, because of its special role in innovative activity and technological progress, has formed the bedrock of the new theories of endogenous growth. Human capital, however, not only serves as an engine of growth, but also as a productive input along with labor and physical capital. In this study, we distinguish between these two roles of human capital and find evidence of the importance of both. We also find that the relationship between growth and the external effects of human capital vary according to trade regime. When literacy rates are relatively high, open economies grow about 0.65 to 1.75 percentage points more than closed economies. Replaced by "Human capital, trade and economic growth"Economic development ; Human capital

Protectionism and Increasing Returns with Comparative-Cost Disadvantage

We reconsider the economics of protection with an industry subject to increasing returns. Under strong comparative disadvantage in one country, any tariff-distorted equilibrium in which both countries produce the commodity must be unstable.In general, under strong comparative disadvantage, the case for free trade is greater than without increasing returns. Also, exceptionally high tariffs are required to protect a high cost increasing-returns industry. Beneficial tariffs or subsidies for the country with comparative disadvantage become prominent when the country with a comparative advantage faces a relevant capacity constraint.increasing returns, protection, comparative-cost disadvantage, flexible capacity

External Economies of Scale and Comparative Advantage

We investigate the interplay, in international trade, between comparative advantage and increasing returns to scale that are external to the firm. We focus especially on “advantage reversals,” where the country with a comparative-cost disadvantage in producing a good nevertheless is able to export it because of the economies of large-scale production. We examine trade policy in such a situation, looking especially at whether that policy should aim at basic policy-regime change.external increasing returns to scale, advantage reversals, size reversals, scale-dominant economy, comparative-cost dominant economy

Country-bashing tariffs: do bilateral trade deficits matter?

Balance of trade ; Tariff

Trade deficits: causes and consequences

According to conventional wisdom, trade balances reflect a country's competitive strength-the lower the trade deficit, the stronger the country's industries and the higher its rate of economic growth. In this article, David Gould and Roy Ruffin review the history of the conventional wisdom and empirically examine whether large overall trade deficits or bilateral trade imbalances are associated with lower rates of economic growth. They find that, once the fundamental determinants of growth have been accounted for, trade imbalances have little effect on rates of economic growth.Deficit financing ; Free trade

What should economists measure? The implications of mass production vs. mass customization

Consumer behavior ; Production (Economic theory) ; Productivity