The theory of comparative advantage holds that even if one nation can produce all goods more cheaply than can another nation, both nations can still trade under conditions where each benefits. Ricardo showed that what was important was the comparative advantage of each nation in production. Ricardo observed that trade will occur between nations even where one country has an absolute advantage in producing all the products traded. Thirty-one years after The Wealth of Nations was published, David Ricardo introduced an extremely important modification to the theory in his On the Principles of Political Economy and Taxation, published in 1817. It implied less government involvement in the economy and a reduction of barriers to trade. This insight implied very different policies than mercantilism. This would enable each nation to specialize in producing the product where it had an absolute advantage, and thereby increase total production over what it would be without trade. Smith argued that when one nation is more efficient than another country in producing a product, while the other nation is more efficient at producing another product, then both nations could benefit through trade. Then Adam Smith challenged this prevailing thinking in The Wealth of Nations published in 1776. Ideally, a nation would export finished goods and import raw materials, under mercantilist theory, thereby maximizing domestic employment. Obviously, not all nations could have an export surplus, but mercantilists believed this was the goal and that successful nations would gain at the expense of those less successful. Mercantilists believed that governments should promote exports and that governments should control economic activity and place restrictions on imports if needed to ensure an export surplus. In a letter written in the 1630s to his son, he said: “The ordinary means therefore to increase our wealth and treasure is by Foreign Trade, wherein wee must ever observe this rule to sell more to strangers yearly than wee consume of theirs in value…By this order duly kept in our trading,…that part of our stock which is not returned to us in wares must necessarily be brought home in treasure.” One of the better-known advocates of this philosophy, known as mercantilism, was Thomas Mun, a director of the British East India Company. This would allow the country to have a bigger and more powerful army and navy and more colonies. In the seventeenth and eighteenth centuries, the predominant thinking was that a successful nation should export more than it imports and that the trade surplus should be used to expand the nation’s treasure, primarily gold and silver. trade agreements and how they should proceed in the future, it is important to review economic theory and see how it has evolved and where it is today. However, economic theory has evolved substantially since the time of Adam Smith, and it has evolved rapidly since the GATT was founded. And this was the view after World War II, when Western leaders launched the General Agreement on Tariffs and Trade (GATT) in 1947. Impact of wto on trading blocs free#Careers, Fellowships, and Internships Open/CloseĪlmost all Western economists today believe in the desirability of free trade, and this is the philosophy advocated by international institutions such as the World Bank, the International Monetary Fund, and the World Trade Organization (WTO).Science and Technology Innovation Program.The Middle East and North Africa Workforce Development Initiative.Kissinger Institute on China and the United States.Nuclear Proliferation International History Project.North Korea International Documentation Project.Environmental Change and Security Program.Hyundai Motor-Korea Foundation Center for Korean History and Public Policy.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |