International Trade Theory and Policy: A Review of the Literature
Levy Economics Institute Working Papers Series No. 635
24 Pages Posted: 26 Nov 2010
Date Written: November 23, 2010
This paper provides a survey of the literature on trade theory, from the classical example of comparative advantage to the New Trade theories currently used by many advanced countries to direct industrial policy and trade. An account is provided of the neo-classical brand of reciprocal demand and resource endowment theories, along with their usual empirical verifications and logical critiques. A useful supplement is provided in terms of Staffan Linder’s theory of “overlapping demand,” which provides an explanation of trade structure in terms of aggregate demand. Attention is drawn to new developments in trade theory, with strategic trade providing inputs to industrial policy. Issues relating to trade, growth, and development are dealt with separately, supplemented by an account of the neo-Marxist versions of trade and underdevelopment.
Keywords: Comparative Costs, Resource Endowment Pattern and Trade, Overlapping Demand, Strategic Trade, New Theories of Trade, Trade and Development
JEL Classification: F11, F12, F14
Suggested Citation: Suggested Citation