Reviews the book Trade, Balance of Payments and Growth, edited by J. Bhagwati, R.W. Jones, R.A. Mundell and J. Vanek

Bhagwati, Jagdish N.

Jones, Ronald W.

Lecomber, Richard

Mundell, Robert A.

Vanek, Jaroslav

Columbia University Academic Commons

1972] TRADE, BALANCE OF PAYMENTS AND GROWTH 263Trade, Balance of Payments and Crowth. Papers in International Economicsin Honour of Gharles P. Kindleberger. Edited by J. BHAGWATI, R . W .JONES, R . A. MUNDELL andJ. VANEK. (Amsterdam: North-Holland,1971. Pp. xi + 532. ;^10-50.)THIS impressive tribute to Professor Kindleberger ranges widely over thefield of international economic theory; it comprises twenty-three papers bysome of the most distinguished writers on this subject. There are surpris-ingly few pot-boilers and altogether the volume gives an excellent picture ofthe frontiers of the theory.It is a picture of unbalanced development ranging from the sophisticatedtheory of factor proportions to the morasses of export-led growth. Workon the former too easily degenerates into theory apparently for its own sakeand of little relevance to any real economy. Mathematicians in particularwould do well to remember that most of us find a page of mathematics moredemanding than a page of (good) prose and, before embarking, needreassurance that our efforts are worth while. Of course theory need notbe like this as a characteristic piece by Jones brilliantly demonstrates. Hetackles a well-worn subject (factor price equalisation) with ingenuity, hisstyle is lucid, his argument vigorous; mathematics is used where andonly where it makes his point more clearly or precisely and is nearly alwayscomplemented by a penetrating intuitive comment; the reader is constantlymade aware ofthe way in which his analysis contributes to an understandingof the real world. Many of us (including some of the contributors) wouldbenefit from careful perusal of this exemplary paper.Several papers confine themselves in the main to the useful task ofsynthesising previous work. Findlay integrates savings-gap and foreign-exchange-gap models into a single illuminating theory. Bhagwati presentsa generalised theory of distortions and welfare; although the links betweenthe bodies of theory here brought together may be more readily apparentthan Bhagwati claims, their formal synthesis is valuable. The piece isinevitably terse and certainly no substitute for reading the more importantof the articles he surveys. Samuelson, in a paper perhaps of prime interestto historians of recent economic thought, integrates the opposing viewpointsin the celebrated transfer problem controversy.Sometimes economic theory seems at variance with the most casual ofobservations. Thus Vanek and Bertrand are worried by the poor explanatorypower of the conventional Heckscher-Ohlin model. A three-commodity-two-factor model is developed (geometrically) and generalised (heuristically)to " explain a very large volume of trade indeed "—a commendable aim;(it is not however clear to the reviewer why (p. 64) for commodities exhibit-ing across-country technology differences, factor-price equalisation shouldimply complete specialisation, while the claim that uniform technology ismost plausible for traditional goods seems far-fetched indeed). McKinnon264 THE ECONOMIC JOURNAL [MARCHattempts to reconcile the theory of distortions and welfare with the observedbehaviour of governments, particularly of L.D.G.s. His reconciliation isbased not on politicians' obtuseness but on the difficulties and costs of devisingotherwise optimal interventions. This simple point is developed well andthe paper, though raising more problems than it solves, is valuable inunderlining the course that practical investigation of the problem shouldtake.Several papers are based on an exposure of quite elementary flawswhich it is still possible to find even in well-charted territory. Thus Gooperchallenges the assumptions of the theory of revaluation, namely that amarginal change is made in a position in which trade is (at least approxi-mately) balanced. A simple tabulation of export-import ratios for 28countries shows the inappropriateriess of this assumption, especially forrecipients of aid. (Much of Gooper's analysis is unfortunately marred byhis failure to distinguish between current- and constant-price aggregatedemand.) Kenen, in analysing the normative aspects of immigration, re-jects the usual income-per-head criterion borrowed from optimum-popula-tion theory. It is, he insists, income per head oHhe previously existing popula-tion that is relevant. Sohmen exposes the idea that fixing exchange rates isidentical with or even a movement towards currency unification.An important paper by Ramaswami and Srinivasan shows (by numericalexample) that resources may move away from the industry receiving thegreatest (effective) protection. This possibility depends on the existence ofmore than one domestic factor and asymmetric substitution effects. Theauthors argue convincingly that asymmetries are likely but do not attemptto establish whether elasticity values are likely to be such as to generateperverse movements. This merits investigation—unless one concurs withthe authors' view that " the invalidity of effective protective rate theory isof little practical consequence." It is ironic that this paper precedes one byBalassa which suggests, inter alia, that an earlier criticism of effective pro-tective rate theory, concerning substitution effects in the input-output matrix,may be something of a non-issue.The most valuable contributions in the less developed areas of inter-national economics are complementary papers by Gaves and Gorden onexport-led growth. Gaves reviews a recent empirical work of the " neweconomic historians " in this elusive field and suggests possible econometricapproaches; Gorden successfully integrates some notoriously vague ideas intoa coherent theory. This theory is neo-classical, " supply-motored; " inhis conclusion he throws out the comment that " there is clearly scope forthe construction of rigorous demand-motored models; " it is to be hopedthat believers in such theories will accept the implied challenge—and is ittoo much to ask that they try to produce some empirical support as well ?It is on the empirical side that the volume is most unrepresentative ofrecent developments in international economics. The empirical contribu-1972] BALDWIN: NON-TARIFF DISTORTIONS OF INTERNATIONAL TRADE 265tions are confined to Gaves' survey, Balassa's piece on effective protection andDiaz-Alejandro's descriptive analysis of Brazil's experience with foreign aid(the cover blurb is surely stretching it a bit to describe McKinnon's paper asempirical!). Gertainly there is virtually nothing to interest the econo-metrician, sparse fare even for the applied economist. The main thrust istheoretical and thus the book should be judged. The theoretician will findmuch to stimulate him and some useful material for his more specialisedstudents.RICHARD LECOMBERBristol University.Non-tariff Distortions of International Trade. By R. E. BALDWIN. (WashingtonD.G.: The Brookings Institution (London: Allen and Unwin), 1971.Pp. viii + 210. ;^3-30 (cloth) ^1-75 (paper).)NON-TARIFF barriers to trade have been increasingly in the limelightsince the Kennedy Round agreement on tariff cuts in 1967. Additionalconcern has been aroused by some national policy measures, such as theshift from turnover tax to V.A.T. in Germany in 1968, which entailed anincrease in border tax adjustments tantamount to a small and quite in-appropriate devaluation of the Deutschemark. The literature on non-tariff barriers is rather widely scattered, and Professor Baldwin, who com-bines eminence as a trade theorist with practical experience of tariff negotia-tions, has performed a valuable service in surveying the whole area andputting forward his recommendations for policy.An introductory chapter on national policies and the GATT is followedby five central chapters on import quotas and export subsidies; protectionistbias in government procurement; border tax adjustments; regional andindustrial policies involving subsidisation of producers; and administrativeobstacles such as customs valuation practices, health and safety regulationsand so forth. The analysis in Ghapter 4 of the impact of general indirecttaxes on internal and external balance is particularly neat, while Ghapter 6includes an excellent two-page summary of the economics of dumping.The penultimate chapter presents disaggregated estimates of the effectiveprotection furnished by tariff and non-tariff barriers respectively to Americanand British industry, both pre- and post-Kennedy Round (but not post-Nixon!).The author's policy recommendations are summarised in the finalchapter. The GATT rules should be revised and extended and the organisa-tion's " confrontation, fact-finding and justification procedures " strength-ened. Non-tariff barriers should be put on a par with tariffs as regardsthe right of countries injured by them to seek compensation through alowering of barriers elsewhere dr, failing that, to retaliate. In this connec-tion the author puts forward some stringent criteria for regional policy.

Trade, Balance of Payments and Growth

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