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A Note on the Gain from Trade

In: Fundamental Issues in Trade Theory

Author

Listed:
  • J. S. Metcalfe
  • Ian Steedman

Abstract

The object of this essay is to investigate the nature of the gain or loss from trade in capitalist economies that are in long-run stationary equilibrium.1 The analysis may be considered an extension of recent theoretical work which has rightly emphasised the role of produced means of production in the general equilibrium analysis of trade,2 although we depart from current analysis in allowing for the impact of a positive rate of interest upon the equilibrium properties of the economies we discuss. It must be made clear that we shall be investigating the gain from trade in two entirely different senses. First, we consider two separate economies identical in all respects, except that one is in a state of autarky while the other is engaged in international trade at given international prices; the gain from trade is derived in familiar fashion by comparing the stationary equilibrium characteristics of the two economies. Secondly, we investigate the gain from trade within the context of a single economy that is initially in a state of autarky and is then unexpectedly faced with the option of trade at given international prices. We are here investigating the gain from trade in terms of the capitalists’ investment decision, weighing together the ‘gains’ and ‘losses’ of the unexpected switch from autarky to trade. The important feature of this analysis is that it takes account of the impact upon attainable consumption of the transition from autarkic to with-trade steady states.

Suggested Citation

  • J. S. Metcalfe & Ian Steedman, 1979. "A Note on the Gain from Trade," Palgrave Macmillan Books, in: Ian Steedman (ed.), Fundamental Issues in Trade Theory, chapter 4, pages 47-63, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-04378-1_4
    DOI: 10.1007/978-1-349-04378-1_4
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