The Basis of International Trade
In the last chapter we studied how changes in the commodity-price ratio occur under the thrust of variations in the factor-price ratio, the overall capital/labour ratio and the relative rate of technical advance in the two industries. Any theory attempting to explain the basis of international trade must always commence with the theory of resource allocation and production in a closed economy. This task having been accomplished in the previous chapters, we are now in a position to pinpoint the factors that determine a country’s pattern of trade. The issue is what goods a country will export and import. Stated differently, is it possible to predict a country’s configuration of exports and imports just by examining the characteristics of a closed economy? Seeking a clear-cut answer to this query constitutes the subject-matter of this chapter.
KeywordsInternational Trade Home Country Price Ratio Pure Theory Transformation Curve
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