Introduction

Abstract

The pure theory of international trade is afflicted with an archaic view of national economies and their interrelations. A national economy is conceived as an independent and basically self-sufficient unit. It can choose freely between producing in perfect autarky or obtaining a modest gain by specializing in some products and exporting these in exchange for other goods it previously made at home. All imported goods can be perfectly produced domestically and there are no adjustment costs involved in replacing imports by such domestic produce. Usually trade is thought to consist of finished goods, with intermediates and raw materials playing only a marginal role. The consequence of this prevailing view of a semi autarkic state is that the long-run growth rate of national income is thought to be independent of trade: at best trade can only temporarily affect growth.