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Free trade is, on the whole, one of the few otherwise controversial policy topics on which economists have near-perfect consensus. Historically, this consensus has long been strong in the English tradition (Hume, Smith, Ricardo, Mill), albeit less strong elsewhere. Famously, 1028 American economists signed an unsuccessful petition in 1930 begging Herbert ...
16
When we import something, we consume it. So when calculating consumption we are bound to count import as a positive component of GDP. Since it is not (we did not produce imports domestically), we subtract it to make it neutral.
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To measure the costs of different people speaking different languages, researchers use a "linguistic distance" metric, see for example this paper. However, measuring the cost of linguistic diversity appears to be challenging. Some effects are shown along the following lines.
Impact of linguistic distance on international trade
In this paper, they construct ...
12
Typically, a devaluation is achieved by selling the domestic currency in the foreign exchange market and buying other currencies. Suppose China sells one trillion Renminbi and buys 157 billion US dollars. From the point of view of the market, it is as if the supply of Renminbi just increased. As in any competitive market, an increase in supply will cause the ...
10
The classic answer here would be Libya and Brunei, but I think Libya now has debt.
Brunei is a strange case in that it uses a joint currency with Singapore dollar, controlled by the monetary authority of Singapore, so in effect you can use Singapore debt as a substitute for Brunei dollar investment.
Not having any debt, and having a free currency is ...
9
Some major benefits include:
Seigniorage on currency acts as a source of government revenue, allowing for lower taxes and higher spending. One paper (Neumann (1992)) puts this at about \$15 billion a year.
Lower borrowing costs on public and private debts due to greater demand for financial assets denominated in the currency, particularly credit risk-free ...
8
One of the most common critiques is that the standard model is a static analysis. While a country might be better off today by focusing on its comparative advantage, its longer term prospects depend on the future of that industry, particularly on how quickly productivity can be improved.
For instance, in David Ricardo's original example, comparative ...
7
One way to navigate rather safely in National Accounting Identities, is to put on the one side "what you have available" and on the other side "what you do with it". In the specific case ($M$ being imports) we would have
$$GDP + M = C + I + G + X$$
"What we have available" is what we produce and what we import.
"What we do with it" is a) consume it b) ...
7
It depends on what you mean by "sustained growth" and "flourishing markets".
Clearly the Earth as a whole is a big market. If you do not look at human made borders: the global economy is currently growing and some would say it is flourishing. There is no physical reason why this could not be done without the borders.
There are areas where the current ...
7
I can get to more technical papers, but it's not a big secret what you have quoted. E.g. The Economist quotes MIT professor John Van Reenen:
But just because the size of the pie expands [due to free trade], it doesn’t mean that everyone is better off. There are going to be some losers whose slice of the pie is so much smaller that they would have been ...
6
India has significantly worse physical/logistics infrastructure than China, Japan, Korea and Taiwan, so it is difficult to produce goods in India because it's difficult to move supplies and product around the country. This, coupled with the comparatively higher complexity of dealing with government bureaucracy, makes it challenging to manufacture products ...
6
The HO model has been generalised. Vanek does a good job of it.
Instead of only two countries, there is an index of countries.
There are many industries.
Identical technology
Identical, homothetic tastes.
The HOV theorem states that if a country is abundant in a factor,
its factor content of trade in that factor should be positive, and
negative otherwise....
6
The underlying reason for persistent wage differences is probably that Mexican workers are less productive than American workers.
It is sufficient that workers in some tradeable sectors are more productive to have persistent wage differences in all sectors. (a good explanation of this effect can be found here: https://en.wikipedia.org/wiki/Balassa%E2%80%...
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It's complicated, and it is supposed to depend on where the ships are generally operating from, rather than the country of the firm that owns the ships or the flag under which they are flown. Under the 2008 System of National Accounts (the international standard for calculating GDP), overseas shipping is generally to be allocated on the basis of the ports ...
5
Max Roser (2014) – ‘International Trade’. Our World in Data provides data on overall international trade growth during the requested time period, citing as their sources:
International Historical Statistics (by Brian Mitchell)
Correlates of War Bilateral Trade (as mentioned in the comments)
The Maddison Project (which I love)
The Rise and Fall of World ...
5
My understanding is that the gravity equation can be derived from different settings.
You can assume that each country
1/ produces only one product. This is knwon as the "Armington assumption" as in Armington (1969) and allows a simple derivation of the gravity equation as in Anderson and Van Wincoop (2003).
2/ is specialized in different products (or ...
5
There isn't a typical answer.
The vendor may want paying in whatever currency represents the highest proportion of their costs, as this reduces their currency risk.
But there may also be restrictions on what currency they can trade in; how much of some particular currency they're allowed to hold; there may be capital controls in place; some currencies ...
5
The omitted variable bias in gravity model is an important issue given that some factors are unobserved or difficult to quantity. To solve this issue trade economists tend to rely on various fixed effect estimators. But, the question is what is your variable of interest?
Exporter-by-year and importer-by-year fixed effects
For instance, if you are ...
5
tl;dr: Uncertainty & trade tariffs
detail
The economics have been assessed by a large number of economic specialists, including the very well-respected and independent Institute for Fiscal Studies.
What would Brexit (meaning the UK leaving the EU) mean?
uncertainty
Well, firstly it means years of uncertainty, while replacement trading arrangements are ...
5
It's fine to make a supposition that it costs Colombia twice as much to make cars as coffee, and Japan twice as much to make coffee as cars. It's also fine to express these ratios in terms of the respective local currencies.
The apparent problem you describe only arises because you go beyond the above and express the costs in terms of a common currency ...
5
World Trade Organization (WTO) rules prohibit export subsidies and China joined the WTO almost 15 years ago (in December 2001). As a condition of membership, China had to eliminate export subsidies in the late 90s. So, strictly speaking, China can't subsidize its exports.
However, Dani Rodrik considers that China subsidizes them indirectly through the ...
5
Four-fifths of Algeria is just desert --which leaves no room for agriculture. The Algerian economy is mostly powered just by the oil industry, which contribute about ~70% of government revenues. Oil and oil related products constitute more than 80% of Algeria's exports.
For example, Turkey has twice the population of Algeria but it has more than 7.5 times ...
5
To complement WorldGov's great points, there are milk subsidies provided in Algeria, which might have been abused for re-sale in other countries:
[These measures of “market saturation” will be accompanied by] “the firm application of the law against all the authors of diversion of milk powder heavily subsidised by the state for the benefit of consumers.”
...
5
You are correct. Trade deficits are not unfair, although it is hard to define unfair in an economic sense. No one is forced to trade and trade represents a consensual agreement.
The strongest economic argument for considering trade deficits unfair is so-called dumping, which is a form of unfair competition. That is when firms sell goods abroad at below a ...
5
You seem to have it the wrong way around.
The act of country A extending Most Favoured Nation status to country B only affects the import tariffs on country B's products, not those on other countries' products. MFN status means that the tariffs on the Most Favoured Nation's products cannot be higher than the lowest import tariff on similar products from ...
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Think of the exchange rate as the price of a currency—in this case the Thai baht. So the exchange rate (THBUSD in this case) is just how many USD you need to buy one THB.
As you said, multiple factors determine the equilibrium price of the currency... most often quoted is perhaps the continued current account surplus (more or less that Thailand exports more ...
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There is no central authority that determines the strength of currency in floating exchange rate regime as it’s determined by the market.
As in every market you have demand and supply for currency.
The demand is given by people who want to hold the Thai currency. That is people who want to import goods from Thailand, people who want to invest in Thai ...
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The Brent price is for oil physically delivered in the UK. The price that went negative if for oil delivered in West Texas, US. The physical and economic conditions at the two places are different - volume available, flexibility of that volume, demand, storage, and so on. This leads to different prices.
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Every country has a trade balance, which is defined as exports minus imports. The United States is a typical observing state, which means their imports are higher than their exports. I do not know the current numbers but USD 1m of imports and USD 600k might be right. In this sense you import USD 400k than you export.
Now as you already pointed out you have ...
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@VicAche this is incorrect. While the consumer may be willing to pay a large amount, consumer surplus is defined as the willingness to pay minus the price she pays. So if the willingness to pay is infinite as you correctly asserted, then the consumer surplus is also infinite. See my answer to this question.
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