Working Paper: NBER ID: w2058
Authors: Robert E. Baldwin
Abstract: This paper focuses on economists' understanding of the basic determinants of trade patterns and, in particular, on the manner in which these underlying factors change over time and are affected by various policies. A brief survey contrasts the determinants of the structure of trade emphasized by the Ricardian, Heckscher-Ohlin, and imperfect competition models and discusses how well the predictions of these various theories are supported by empirical evidence. The main conclusion of the survey is that trade economists have been reasonably successful in explaining the structure of trade at any point in time but much less successful in understanding how the determinants of the patterns of trade change over time. This inability to explain how the basic determinants of the structure of trade change over time can lead both to poor predictions and bad policy advice. Given the increased interest in long-term shifts in trading structures, it is argued that trade economists should enlarge their analytical framework by endogenizing to a greater extent the basic economic factors determining these shifts. They must also recognize the endogenous nature of trade policies in their models, if they are to carry out their predictive and evaluative roles in the best possible manner.
Keywords: international trade; trade patterns; economic policies; Ricardian model; Heckscher-Ohlin model
JEL Codes: F1; F2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| changes in basic economic variables (E39) | shifts in trade patterns (F19) |
| short-term policy measures (E63) | long-term economic outcomes (F69) |
| introduction of imperfect competition (L13) | enhanced understanding of trade patterns (F14) |
| increasing returns to scale (O40) | enhanced understanding of trade patterns (F14) |
| underlying economic variables (E39) | trade patterns (F10) |