International Trade and National Welfare

International Trade and National Welfare

International Trade and National Welfare

International Trade and National Welfare

Synopsis

When can a country be said to benefit from free trade? Murray Kemp here presents the recent progress he and his co-workers have made in tackling this important question.

Excerpt

That the internationalization of the world economy has steadily increased since the end of World War II is generally accepted. Indeed it has become a cliché. However, there is no generally accepted definition of internationalization; consequently, there are no generally accepted propositions concerning the implications of internationalization. In the present essay we offer three alternative definitions of internationalization and then consider some of the welfare implications of internationalization as defined.

There are at least two broad senses in which one may speak of the internationalization of the world economy. These senses we may characterize as the statistical and the conceptual. The economy is internationalized in the statistical sense if the ratio of world trade to world output increases or if the ratio of foreign investment to world output increases, or if the information available to households and firms becomes more uniform over countries. It is internationalized in the conceptual sense if there is a loosening of the restrictions which govern either international trade and investment or the international dispersion of information, where the restrictions may be either natural or man-made. Clearly the world economy might be simultaneously internationalized in the statistical sense but de-internationalized in the conceptual sense; and vice versa.

Here we focus on the welfare implications of internationalization in the conceptual sense. Even within that limitation, however, we are much less than comprehensive. Thus attention is restricted to just three forms of internationalization, associated respectively with an enlargement of the set of trading countries, with an enlargement of the set of tradeable commodities and with the international sharing of technical information.

We acknowledge with gratitude the useful comments of Kar-yiu Wong.

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