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Production of commodities by means of labour. A theory of international relations

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  • Gianpaolo Mariutti

    (Department of Economics (University of Verona))

Abstract

Since (at least) Ricardo, international trade has been perceived as a positive-sum-gain – any partner involved in the international activity of exchange would be at the end better off, no matter how bad was its previous economic position. The Ricardian principle of comparative advantages (RPCA) allows to explain why this would be so. Though the principle is still perceived as being a non-trivial-truth-for-certain, the paper discusses critically its application by adopting a dynamic multisectoral production model of a pure labour economy. Though abstract, the features of the model seem sufficiently realistic: differentiated sectors, with different technological, demand, and productivity levels; unemployment threats, demand constraints, uneven dynamics of all the above variables. If the unit of analysis is the individual country, rather than the international system as a whole, we show that the RPCA assures only a static “once for all” drop of the level of prices. It may not assure gains from trade in seven out of eight variables examined. Employment, productivity, per capita income and their respective rates of change, plus the rate of inflation, may turn out after trade worst than they would have been without trade. Hence, the RPCA is in many respects inconclusive. An individual country may specialize according to this principle and still arm its economy. Static as well as dynamic losses from trade are just a possibility as they are static and dynamic gains.

Suggested Citation

  • Gianpaolo Mariutti, 2007. "Production of commodities by means of labour. A theory of international relations," Working Papers 44/2007, University of Verona, Department of Economics.
    • Handle: RePEc:ver:wpaper:44/2007
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    References listed on IDEAS

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    More about this item

    Keywords

    comparative advantages; structural change; international specialization; economic growth;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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