robsryder
10-14-2008, 03:19 PM
The winner of the Nobel Prize for Economics was awarded to Paul Krugman for his work on trade. There were several related articles in today's Wall Street Journal. One of these articles caught my eye.
For centuries, the economic view on trade was that countries export items that they have a comparative advantage in producing, and import items that they don't. ...
In the modern world, trade hasn't followed the lines of specialization that Ricardo's theory suggests it should. Rather, a handful of countries dominate trade and in many cases both import and export similar goods. ...
In 1979, Mr. Krugman proposed a theory of trade that incorporated consumers' desire for diversity in their purchases. For example, some Americans will want European-made BMW motorcycles while some Europeans want American-made Harley-Davidsons; thus, the U.S. will import and export motorcycles. Both BMW and Harley-Davidson will then be able to take advantage of economies of scale in building their brand of motorcycle, lowering costs so that consumers in both Europe and America will enjoy many choices at lower prices.
http://online.wsj.com/article/SB122389602110728309.html
For centuries, the economic view on trade was that countries export items that they have a comparative advantage in producing, and import items that they don't. ...
In the modern world, trade hasn't followed the lines of specialization that Ricardo's theory suggests it should. Rather, a handful of countries dominate trade and in many cases both import and export similar goods. ...
In 1979, Mr. Krugman proposed a theory of trade that incorporated consumers' desire for diversity in their purchases. For example, some Americans will want European-made BMW motorcycles while some Europeans want American-made Harley-Davidsons; thus, the U.S. will import and export motorcycles. Both BMW and Harley-Davidson will then be able to take advantage of economies of scale in building their brand of motorcycle, lowering costs so that consumers in both Europe and America will enjoy many choices at lower prices.
http://online.wsj.com/article/SB122389602110728309.html