Trade: Neoclassical Liberal Views on Impacts

Abstract

International trade is a dynamic and powerful force that affects nearly every individual, business, and nation in the world. Its scope and scale have also made international trade an immense, intense, and perennial subject of interest and inquiry. Some of the foundational works on international trade can be traced back to Adam Smith and David Hume, whose theories sought to debunk the commonly held idea of international trade at the time: mercantilism, which viewed exports as beneficial because they generated an increase in foreign currency and a nation’s wealth, and imports as detrimental because they were thought to decrease a nation’s wealth. Today, the general idea of comparative advantage informs almost all neoclassical economists’ models of international trade. However, neoclassical economists tend to assume that the theoretical benefits of international trade are clear, and thus, often ignore or dismiss the negative impacts of international trade and the studies that challenge their theories. In fact, many countries have not seen the benefits predicted by neoclassical economic theories. This is particularly evident when comparing the effects of international trade across developed and developing countries. Furthermore, there is evidence that international trade has developed along patterns that are not predicted by the traditional theories of comparative advantage. Given these, the practice of trade and its international impact can be much murkier.