On the Smithian Origins of "New" Trade and Growth Theories

Abstract

Adam Smith (1776) is generally ignored as an international trade theorist in textbooks and surveys because of the common belief that he only confirmed the rule of absolute advantages to explain structure of foreign trade. On the other hand, many textbooks and surveys on growth theories simply overlook Smith's significant contributions to economic growth theory. However, his vent-for-surplus approach may be interpreted as a pioneering study which stresses the importance of economies-of-scale in explaining the structure of foreign trade. Furthermore, in Smith (1776), both learning by doing and economies-of-scale are crucial to explain long-run economic growth. This short paper addresses to the undeniable influence of Smith's concepts such as extent of the market, division of labor, improved dexterity in every particular workman and simple inventions coming from workman on both recent trade and growth models. The note mainly is based on a schematic outline of Smith's ideas on the nature and causes of the wealth of nations.