Geoffrey Fishburn

NORMATIVE TRADE THEORY IN A CONTEXT OF OVERLAPPING GENERATIONS AND INTER-GENERATIONAL BEQUESTS

The core normative propositions of the theory of international trade have been established in the context of finite competitive economies of the Walras–Arrow–Debreu–McKenzie (WADM) type. Whether the propositions survive the recognition that economies might last for ever, with overlapping generations (OLGs) of mortal individuals and intergenerational bequests, is still unknown. In the present paper it is shown that none of the core propositions survives the recognition of inter-generational bequests but that, under a simple (but non-trivial) additional assumption, each of the core propositions is compatible both with OLGs and with inter-generational bequests.

IMPOVERISHING TECHNICAL AND PREFERENTIAL IMPROVEMENTS

Edgeworth showed that a free-trading country might be impoverished by its own technical improvements if they are confined to the export industry and if no good is inferior in consumption. More recently it has been shown that improvements confined to the countrys import competing industry can never be impoverishing if, in that country, no commodity is inferior in consumption. However, in all available proofs of these propositions, it has been assumed that for each country there exists an autarkic equilibrium. It will be shown that, without that assumption, the second proposition must be severely qualified. Copyright 2007 The Authors Journal compilation 2007 Blackwell Publishing Ltd

The Rise and Fall of Normative Trade Theory

Three core normative propositions of the theory of international trade have been established in the context of finite competitive economies of the Walras−Arrow−Debreu or McKenzie (WADM) type. Whether the propositions survive the recognition that economies might last forever, with overlapping generations (OLGs) of mortal individuals and intergenerational bequests, is still unknown. In the present chapter, it is shown that none of the core propositions survives the recognition of intergenerational bequests. It is also noted that, if a particular tailor-made assumption is introduced, all three propositions survive.

The Rise and Fall of Political Economy

The concept of the Self in political economy has not remained a constant but, as we argue, has changed through time. In this chapter, we trace one line of evolution of the concept starting with Adam Smith. As the concept has underpinned normative analysis, we present three such propositions and show how, with the application of the most extended concept to date of the Self, these propositions must now be abandoned.

The Gain from International Trade in Pool Goods and Private Goods

It is well known that perfectly competitive free trade is potentially beneficial for all countries if all goods are both rivalrous and excludable in consumption (“private goods”) and recently (2011) the proposition has been modified to accommodate non-rivalrous and non-excludable goods (“public goods”), as well as non-rivalrous and excludable goods (“club goods”). In the present paper the proposition is modified again, to accommodate rivalrous and non-excludable goods (“pool goods”). The primary focus is on ocean fisheries, access to which is shared (not necessarily equally) by all countries. However the central proposition to be established is valid for all international pool goods.

A necessary first test for the creation of an infant industry

It has long been appreciated that any country wishing to develop by means of fostering the growth of an infant industry must be prepared to trade off a temporary loss of welfare for the greater long-term gain when the candidate industry has matured. But the application of an observation by Murray C. Kemp (Kemp, 2003) now alerts us to the possibility that intervention in trade, such as in the case examined here of bringing the candidate (import-competing) industry to a desired level of output from which growth can proceed autonomously, might not be sustainable. Whether this can be done is the first test which must be applied to any proposal for infant-industry status.