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International Trade Question

  • 21-05-2010 4:00pm
    #1
    GARY_BREEN
    Registered Users Posts: 29 ✭


    A question I am stuck on...

    Are there any losers from trade in the Ricardian Model?

    Any help greatly appreciated:)


Comments

  • #2
    Time Magazine
    Registered Users, Registered Users 2 Posts: 8,452 ✭✭✭Time Magazine


    http://en.wikipedia.org/wiki/Heckscher%E2%80%93Ohlin_model#Features_of_the_model

    If Ireland focuses on capital-intensive goods (e.g. potatoes) and England focuses on labour-intensive goods (e.g. hair-cuts), then landowners are better off in Ireland (because of higher demand for land to grow the potatoes) and labourers are better off in England (because of higher demand for barbers). By implication, labourers in Ireland and landowners in England would lose from trade/specialisation (because of lower demand for labour and land, respectively).

    Of course the proviso in this is that if the gains from trade are re-distributed, then everyone can be better off.


  • #3
    GARY_BREEN
    Registered Users Posts: 29 ✭GARY_BREEN


    Time Magazine wrote: »
    http://en.wikipedia.org/wiki/Heckscher%E2%80%93Ohlin_model#Features_of_the_model

    If Ireland focuses on capital-intensive goods (e.g. potatoes) and England focuses on labour-intensive goods (e.g. hair-cuts), then landowners are better off in Ireland (because of higher demand for land to grow the potatoes) and labourers are better off in England (because of higher demand for barbers). By implication, labourers in Ireland and landowners in England would lose from trade/specialisation (because of lower demand for labour and land, respectively).

    Of course the proviso in this is that if the gains from trade are re-distributed, then everyone can be better off.

    So only if the gains from trade are not re-distributed there are losers in the Ricardian Model yes?


  • #4
    noodler
    Registered Users, Registered Users 2 Posts: 26,522 ✭✭✭✭noodler


    Being contemporary for a moment, redistribution would be in the form of welfare etc.

    i.e. it would still be better for the economy to allow free trade in the above example and then just "give" money to the labourers in Ireland than it would be to deny free trade.

    However, Ricardian models (in their simplist form which I assume is how you are studying it) it is enough to say that there are losers but that the economy as a whole is better off.


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