On 30-11-01, James Devine wrote: >Peter Dorman writes: > > >... Forget about Ricardo. This stuff is interesting from a history of >thought point of view, but modern trade theory differs from Ricardian theory >in important ways. Some of the criticisms lefties have hurled at Ricardo >bounce off the modern folks...< > >however, Ricardo may be relevant to pedagogy. For example, it is really easy >to explain the standard 2x2 Ricardian matrix and then say: what happens if >Portugal decides to _change_ its comparative advantage?
It is also possible to use the Ricardian matrix (or a partitioned Sraffa matrix) to show that: 1) there is not a single exchange rate but a range of exchange rates over which trade is profitable to both sides 2) therefore gains can be assymetric 3) if placed in a dynamic context with accumulation this produces differential growth, and if we add some investment in R&D, the comparative advantage changes exponentially. On 4 Dec Peter Dorman wrote: >The case for comparative advantage is potential pareto improvement >relative to autarchy. Gains may be assymetric because in manufactured goods there is much more chance of manufacturers controlling prices down the chain, certainly to the cif level and maybe even retail, whereas farmers do not succeed in doing that. I did a survey on import price determination in Tanzania once in this very framework. In such a situation there is no possibility of free trade based on comparative advantage. The choice is between what I might call hegemonic free trade and intervention in the sectors concerned. What Peter has in mind is really a special case. Michael Yaffey
