State power and world markets - Joseph M. Grieco and G. John Ikenberry

Résumé du document

In this text, the authors explain the theory elaborated by Ricardo in order to explain that countries which do not necessarily have absolute advantages can however trade if they specialize. This is the theory of comparative advantages. This theory is fundamental to understand economic international relations. It is different from what Smith thought: he considered than countries should produce each good for which it has absolute advantages. In this vision, a country which has a lot of absolute advantages will dominate every other country in terms of trade. So countries which do not have any absolute advantages (or only a few) would not benefit from trade. In Ricardo's theory, everyone can benefit from trade because every country has comparative advantages.

The authors try to simplify a lot this pattern to make it easier to understand (as Ricardo did it) take this example of two countries: Brazil and the USA. If we consider that these countries produce only two goods (shoes and computers), every country has incentives to specialize its production in only one of both goods. For example, Brazil should choose to produce only shoes and not to produce computers. On the other side, the USA will prefer to produce only computers. Then, both countries can exchange: the USA will sell computers to Brazil and buy shoes from this same country. Although the USA has absolute advantages for both goods, it has incentives to specialize and to trade in order to get shoes produced by Brazil. This is not explained by Ricardo in terms of absolute costs but in terms of relative ones. If we consider that workers are able to produce both shoes and computers, increasing the number of computers will decrease the number of shoes for each country.

Extraits

[...] State power and world markets Joseph M. Grieco and G. John Ikenberry In this text, the authors explain the theory elaborated by Ricardo in order to explain that countries which do not necessarily have absolute advantages can however trade if they specialize. This is the theory of comparative advantages. This theory is fundamental to understand economic international relations. It is different from what Smith thought: he considered than countries should produce each good for which it has absolute advantages. In this vision, a country which has a lot of absolute advantages will dominate every other country in terms of trade. [...]

[...] On the other hand, if the USA wants to produce one more pair of shoes, it will have to forgo the production of 0.25 computers whereas it will be only 0.03 for Brazil. Although it seems a bit complicated, this reasoning may be explained, through graphical representation, in terms of opportunity cost and production possibilities frontiers. In this text, the authors try to state Ricardo's argument with more contemporary examples. If two countries specialize and trade, there is an increase in both global production and global consumption so this argument seems very pertinent. [...]

[...] This analysis may be considered as part of the State-society approach in terms of international relations theories. Indeed, what the authors point out is internal economic conditions may influence decisions taken by the State in international politics. It particularly depends on productivity and opportunity costs in certain fields of economy. This article is interesting although taking two countries for the example is a bit simplistic. References J.M. Grieco and G.J. Ikenberry, State power and world markets: the International Political Economy, Norton pp.29-36 on Comparative Advantage. [...]

[...] In my opinion, it is a bit regrettable that the authors do not go further in their critics and try to give a relevant answer. I think that nowadays, Ricardo's theory does not work really. If we consider developing countries, it seems obvious that they do not entirely benefit from International trade. However, Ricardo is considered as the economist thinker who influenced the most the creation of WTO. Today, I have the feeling that Smith was more relevant when he asserted that international exchanges would generate both winners and losers. Moreover, Ricardo's theory draws a number of assumptions which are not always true. [...]