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

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  • Thomas I. Palley

Abstract

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.

Suggested Citation

  • Thomas I. Palley, 2006. "Rethinking Trade and Trade Policy: Gomory, Baumol, and Samuelson on Comparative Advantage," Economics Public Policy Brief Archive ppb_86, Levy Economics Institute.
    • Handle: RePEc:lev:levppb:ppb_86
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    References listed on IDEAS

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    1. 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.
    2. Robert A. Blecker, 2007. "The Economic Consequences of Dollar Appreciation for US Manufacturing Investment: A Time-Series Analysis," International Review of Applied Economics, Taylor & Francis Journals, vol. 21(4), pages 491-517.
    3. Thomas Palley, 2003. "Asset Price Bubbles and the Case for Asset-Based Reserve Requirements," Challenge, Taylor & Francis Journals, vol. 46(3), pages 53-72.
    4. Thomas Palley, 2008. "The Economics of Outsourcing: How Should Policy Respond?," Review of Social Economy, Taylor & Francis Journals, vol. 66(3), pages 279-295.
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    Cited by:

    1. Rainer Kattel & Erkki Karo, 2010. "Is 'Open Innovation' Re-Inventing Innovation Policy for Catching-up Economies?," The Other Canon Foundation and Tallinn University of Technology Working Papers in Technology Governance and Economic Dynamics 30, TUT Ragnar Nurkse Department of Innovation and Governance.

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