Abstract
The recent volatility of international trade and mounting pressures for protection have stimulated new interest in the role of adjustment in trade theory. An excellent cross-section of current research is provided by an NBER volume on import competition and adjustment (Bhagwati, 1982). These essays show that adjustment may be, or may appear to be, costly for several reasons. First, real resources may be required to switch factors of production from one activity to another, as in retraining or retooling.1 Second, adjustment may induce unemployment because of imperfections in factor markets.2 Third, adjustment may be made costly by policy; for example, subsidies to declining industries may raise costs above competitive levels for expanding industries.3
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References
Bhagwati, Jagdish N. (ed.) (1982) Import Competition and Response (Chicago: University of Chicago Press).
Diamond, Peter A. (1982) ‘Protection, Trade Adjustment Assistance, and Income Distribution’, in J. N. Bhagwati (ed.), Import Competition and Response (Chicago: University of Chicago Press).
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© 1985 International Economic Association
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Petri, P.A. (1985). International Trade Based on the Ability to Adjust. In: Jungenfelt, K., Hague, D. (eds) Structural Adjustment in Developed Open Economies. International Economic Association Series. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-17919-0_3
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DOI: https://doi.org/10.1007/978-1-349-17919-0_3
Publisher Name: Palgrave Macmillan, London
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