The Loss from Trade with Capital Goods: The Sraffian Bonus Can Be Negative
27 Pages Posted: 11 Jul 2018
Date Written: June 17, 2018
Paul A. Samuelson extends the Ricardian theory of foreign trade to a model of small open economies in which countries can trade semi-finished capital goods on international markets, as well as trade in produced consumer goods. He argues that this extension provides an additional gain from trade, which he labels the Sraffian bonus. This article demonstrates that trade in consumer and capital goods can result in a loss for an economy, given positive rates of profits in the trading countries, as compared with trade in consumer goods only. In other words, the Sraffian bonus can be negative.
Keywords: Foreign Trade, Sraffian Bonus, Comparative Advantage
JEL Classification: B51, D24, F10
Suggested Citation: Suggested Citation