CJE 2001 critical review of trade theory and policy

[g kohler <kohlerg@xxxxxxxx>]

The Cambridge Journal of Economics 2001 has an interesting critical
review article on trade theory and policy. Any comments?
Gert Kohler

Reference:
Sonali Deraniyagala and Ben Fine,
"New trade theory versus old trade policy: a continuing enigma"
Cambridge Journal of Economics 2001, 25, 809-825

My EXCERPTS ------------------------------------
p809 "As reported in Prasch (1996), support for free trade amongst
academic economists in the USA is astonishingly high at 97%!"

p810 "Section 1 examines conventional theoretical arguments relating to
trade liberalisation and
Section 2 reviews recent developments in new trade theory.
Section 3 examines the empirical research relating to liberalisation
dealing with both cross-country research and industry and firm-level
studies.
We close with a brief summary."

TRADITIONAL THEORY
STATIC GAINS
p810 "Static, once-and-for-all gains arise as the misallocation of
resources under protection and import substitution is corrected, . . .
empirical estimates of the welfare costs of these relative price
distortions rarely exceed 2 or 3 percentage points of GDP . . .
negligible welfare gains . . ."

"DYNAMIC, LONG-TERM GAINS FROM LIBERALISATION"
The authors examine rent seeking, X-efficiency, IRS, and long-term
productivity arguments and find that
p810 arguments for those are "lacking both theoretical consistency and
empirical validity"

NEW TRADE THEORY
p.812 "established in the 1980s (Ethier, 1982; Krugman, 1984, 1986;
Brander and Spencer, 1985; Eaton and Grossman, 1986; Grossman and Horn,
1988; Grossman and Helpman, 1991)."
p812 "incorporating a fuller range of factors. However, they provide
few, if any, unambiguous conclusions."

LINKS WITH NEW GROWTH THEORY
p814 "Models linking trade and endogenous growth . . . provide few
generalisable conclusions."

EMPIRICAL EVIDENCE from Cross-Country Research
p817 "many of these studies suggest that the effects of liberalisation
on growth are ambiguous and complex"
p818 Greenaway et al 1998 - "use panel data across liberalisers and
non-liberalisers (with/without and before/after) to come to a negative
conclusion on the effect of trade reform on growth . . ."
p820 "liberalisation beyond trade, to capital markets, has not been
favourable to industrial performance" - The authors mention the
influence of other factors, including exchange rates, interest rates,
demand.

CONCLUSIONS
p821 "the thrust of the theoretical and empirical literature is far from
supportive of such postures" [sc for "free trade"]
p821 "it is totally inappropriate to address trade theory and policy
separately from other aspects of industrial policy and performance and
macroeconomic considerations."






____________________________________________________________________________________
Still paying $22.95 a month for unlimited dial-up? Get 3webXS, only $9.95 a month!!!
Switch & Save at http://www.Get3web.com/?mkid=emt001