Comparative advantage is a very concept in the international trading, and what is amazing is that this concept was first raised by David Ricardo around two centuries again. There are still many economists studying this concept nowadays. Comparative advantage suggests that countries compare the advantages across other countries but also across their domestic industries. This could be seen as a process of difference in difference. Based on the comparative advantages, the factors that change the absolute advantages between two countries will not influence the trade between countries. This is because these factors will not change the structures within their domestic economies, the relatively more efficient industries will not be changed by these exogenous factors. Based on this belief, the factors like exchange rates will not change the trading positions between two countries since their comparative advantages will not be changed by the changes in exchange rates.
Moreover, trade is good for economies in general, as the aggregate returns are positive (trade is not a zero sum game). However, trade may hurt sovereignty, as trade means cooperation with other countries. Because of trade, countries would lose some of their dependence, especially when the trade between countries is mostly inter-industry trade. Once there are two countries that have different levels of dependence with each other, the one with the lower level of dependence could have more bargaining power when they are on the negotiation table.
(Inspired by Peter Neary’s lecture)
No comments:
Post a Comment