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Rethinking Trade and Trade Policy: Gomory, Baumol, and Samuelson on Comparative Advantage

  • Thomas I. Palley

The theory of comparative advantage says that there are gains from trade for the global economy as a whole. In this second brief of a three-part study of the international economy (see also Public Policy Brief No. 85), Research Associate Thomas I. Palley observes that comparative advantage is driven by technology, which can be influenced by human action and policy. These associations have huge implications for the distribution of gains from trade and raise concerns about the future impact of international trade on the U.S. economy. Palley calls for strategically designed U.S. trade policy that can influence the nature of the global equilibrium and change the distribution of gains from trade. Recent works by Ralph Gomory and William Baumol and Paul Samuelson use pure trade theory to question the distribution of trade gains across countries over time and to challenge commonly held beliefs. These microeconomic and trade theorists identify a new issue: the dynamic evolution of comparative advantage and its impact on the distribution of gains from trade, which depends on changing global demand and supply conditions.

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Paper provided by Levy Economics Institute in its series Economics Public Policy Brief Archive with number ppb_86.

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Date of creation: Jun 2006
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Handle: RePEc:lev:levppb:ppb_86
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  1. Thomas Palley, 2003. "Asset Price Bubbles and the Case for Asset-Based Reserve Requirements," Challenge, M.E. Sharpe, Inc., vol. 46(3), pages 53-72, May.
  2. Thomas I. Palley, 2007. "The Economics of Outsourcing: How Should Policy Respond?," Economics Public Policy Brief Archive ppb_89, Levy Economics Institute.
  3. Robert A. Blecker, 2006. "The Economic Consequences of Dollar Appreciation for US Manufacturing Investment: A Time-Series Analysis," Working Papers 2006-07, American University, Department of Economics.
  4. Paul A. Samuelson, 2004. "Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 135-146, Summer.
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