Public Inputs and the Theory of International Trade

Abstract

In recent years several parts of the pure theory of international trade have been reworked to incorporate public intermediate goods.(1) Meade[1952] recognized two types of public intermediate goods. One type consists of pure public goods, which Meade called ‘creation of atmosphere’, and the other type consists of semi public goods, which he called ‘unpaid factors’. Pure public goods remain fully available to every firm irrespective of the number of firms. Free information about technology is a typical example of this type of public good. On the other hand, semi-public goods suffer from congestion within an industry and thus a reduction of availability to a firm when the number of firms in this industry expands. Examples of this type of public goods are transportation services of roads and telecommunication networks. The mathematical formulation of the production function for a private good makes clear the distinction between them. The production function is linear homogeneous in primary inputs and semi-public inputs but not in pure public inputs.