Specialization, Trade, and Growth

Abstract

This chapter shows the emergence of trade in a model with no exogenous comparative advantage but with economies of specialization and analyses the effects of tariff protection on international trade. In the case of no retaliation, the result on the real income of the country with tariff is not definite. However, in the case of full retaliation against any tariff imposed by a country or the case of a small country, the effect of protection is unambiguously negative. Does the enrichment or growth of a sector (individual/region/country) benefit others? If the enrichment consists in a higher ability to produce goods, this tends to benefit others; if the enrichment consists in an improvement in the transaction efficiency, the result is ambiguous.