The Essence of International Trade Theory

Noritsugu Nakanishi

• Publisher: WSPC
• Year: 2018
• eBook ISBN: 9789813274402
• Topic: Economics
• Subtopic: Business General
• Index: Economics

This textbook aims to explain the principles in international trade theory and show how some useful trade models work. The book concentrates on two fundamental issues in international trade, that is, the 'determinants of trade patterns' and the 'welfare gains from trade' in various economic environments. Chapters 1 through 3 assume perfect competition and explore the workings of the Ricardian model, the Heckscher-Ohlin-Samuelson model, the Specific Factors model and more recent development of the Eaton-Kortum model. Chapter 4 examines various welfare criteria and their relation to the 'social utility function' and, then, proves the basic gains-from-trade proposition. Chapters 5 and 6 examine the implications of imperfect competition using a unified oligopolistic model and variations of the monopolistically competitive model. The roles of the strategic interaction among firms, the economies of scale, product differentiation, the heterogeneity of firms, and the geographic distribution of agents will be highlighted. Chapter 7 deals with some trade policy issues such as the effects of tariffs, the relation of tariffs to other policy measures, and the so-called strategic trade policies.

Contents:

• Preliminaries
• Basics of Comparative Advantage
• Factor Endowments
• Free Trade and Welfare
• Oligopoly
• Monopolistic Competition
• Trade Policy

Readership: Students and researchers who would like to understand the fundamental principles in international trade.
Key Features:

• The book will be designed to fit a course in one semester (i.e., a course with about 15 regular lectures) so that the contents of one chapter can be covered by two regular lectures
• The book will concentrate on the "theoretical issues" in international trade (i.e., the construction and operation of the basic models and some fundamental theorems derived from them). In almost all cases, historical background and empirical evidence of the theories will be omitted from the book

Chapter 1

Preliminaries

In order to derive clear-cut results, international trade theory often makes use of simple small-scale models, which consist of only small numbers of goods, production factors, and/or countries. Those results obtained from small-scale models, however, can be extended to more general settings (with appropriate modifications and reinterpretations) as far as we fully recognize which properties are generic to an economy and which are specific to the model under consideration. In this preliminary chapter, we introduce some basic concepts, technical terms, and analytical tools in a general setting, which will be used in some specific contexts later in the book.

We consider an economy of a single country in which a number of different agents participate in various economic activities. Typical economic activities include production, consumption, and exchange of goods and services in the marketplace.¹ The agents that play central roles are firms, who produce and sell goods, and households, who buy and consume goods. All markets are assumed to be perfectly competitive.² That is, each individual agent cannot control the prices of goods and services; instead, the market mechanism determines the prices so as to establish the market equilibrium — a situation where the demand and supply for goods and services are equalized in all markets.

1.1Production

Production is a firm’s activity of converting a set of some objects (i.e., inputs) into different kinds of objects (i.e., outputs). In general, inputs are classified into two categories: intermediate goods and primary factors of production (production factors or, simply, factors). Intermediate goods are inputs to a production activity that themselves are the outputs of other production activities. On the other hand, primary factors are productive services provided by such things as labor, capital, and land that are not (considered to be) the outputs of other production activities (at least) within a certain period of time. We have to distinguish the productive services provided by a primary factor from the factor itself as a physical object that generates productive services. For example, when we refer to “capital” as a physical object, it means a stock variable such as machine tools, equipments, and factories, which are indeed the outputs of some production activities completed b...

Table of contents

• Cover
• Halftitle
• Title
• Copyright
• Dedication
• Preface
• About the Author
• Acknowledgment
• Contents
• 1. Preliminaries
• 2. Basics of Comparative Advantage
• 3. Factor Endowments
• 4. Free Trade and Welfare
• 5. Oligopoly
• 6. Monopolistic Competition
• 7. Trade Policy
• Bibliography
• Index