« Specialization or diversification | Main | And now for something completely different ... »

May 17, 2007



I have no trouble following the discussions about trade if the country's trade is in rough balance. But how does it impact the arguments and gains or loses when the country run a large and significant trade deficit as the US is doing? Excluding the impact through the interest rate side of the model does the fact that the import side is much larger then the export side change the cost-benefit calculations?

Brad DeLong

Aha. Price effects as an add-on to gains-from-trade is clearly a non-starter...

Somebody else, somewhere, suggested a model in which increased trade decreased local market power, and in a model with menu costs led to decreased inflation. But I'm not sure it was coherent...


Justin Rietz

What about the differences between the short run and the medium / long run? Is there any disagreement that in the long run opening up markets to free trade is beneficial to all parties?

In the short run, there is an increase in domestic unemployment and a decrease in wage levels caused by lower priced imports. However, the new markets for exports creates an increase in demand for exported goods, causing the domestic prices of these goods to increase. Businesses in the exporting industries, faced with lower wage levels and higher prices for their goods, hire more workers and increase production - basic MR = MC equilibrium. Moreover, lower wage levels will also entice businesses not directly involved in trade to hire more workers and expand production.

The result: wage levels bounce back, the domestic price of exported goods drops, and general production increases (with the possible result of an across the board increase in consumer purchasing power).

Obviously this takes some time to occur. Therefore, the trade policy that would follow from this would be: continue to open up markets to free trade and provide short-term support (unemployment benefits, retraining stipends) for workers impacted directly by cheaper imports. We can consider the costs of these short term safety net measures as "punishment" for having protectionist policies in the first place. Eventually, all markets (domestic) will be open to free trade and we won't have anything to blog about ;-)


I'm confused.

I don't know if it can "override" dsitributional issues. My guess is for someone who lost their job to overseas competition, cheaper consumer goods don't make up for their loss of welfare, that being said, the change in the relative price of imports as a result of free trade (for the rest of us), IS an "add on" to the separate comparative advantage restructuring benefits of liberalization, is it not?

air jordan shoes

I love air jordan shoes .

nike shox sale

Nike Shox|Nike Shox Sale is special for you with a very pretty design


thanks so much admin ı love jordan

Ugg london

Don't waste your time on a man/woman, who isn't willing to waste their time on you.

chi flat iron

CHI flat iron by Farouk system. Direct from the manufacturer, this genuine Chi ceramic iron comes with valid, one year warranty!

rado watches

Why is everyone just montblanc watches willing to accept power cuts? Don't you think that patek philippe watches having continious power is your right? If people aren't going to demand rado watches 24X7 power, don't expect anything zenith watches to change. The government needs to look at other sources parmigiani watches of power generation. The only solution is more power panerai watches production. Nothing less.

rolex watches

People usually say :"Seeing is believing." http://www.tt88times.com
Each attempt has a corresponding gain, in part or obvious, or vague. At least we have the kind of satisfaction After I bought this watch ,in a sense,it means a great deal to me. http://www.fashionhairfu.com


I like these articles , democratic countries formulate policies are both team and the interests of the people of power, but the undemocratic countries rarely for the interests of the people, http://www.jerseysky.com it is the sorrow of many democracy, I like the western and northern state policy.


I am a senior student, I Love your blog as i love study english, I learn much from this post, i ths very much.

mbt shoes

I am a senior student too, I Love this post as i love study english, This article is to my feelings, thanks for your sharing, hoping to see more useful content.


I like these articles , democratic countries formulate policies are both team and the interests of the people of power, but the undemocratic countries rarely for the interests of the people

louis vuitton pochette

If our interpretation is correct, no rebalancing of the labor force can restore a more equal distribution of productivity gains without government intervention and changes in private sector behavior.

Account Deleted


Thanks a lot.

Account Deleted


thanks ...

Account Deleted


Thanks to you ...

Account Deleted

Many places and centers offer business and trade promotions to both buyers and supplier

Account Deleted

Thanks for sharing your article. I really enjoyed it. I put a link to my site to here so other people can read it

Account Deleted

What about the differences in skill intensities across industries? The job losses in the relatively unskilled-labor intensive battery industry should have little effect on the relatively skilled-labor intensive machinery
sexshop online

The comments to this entry are closed.