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Lecture 4 - International Trade and Trade regulation

Lecture 4 - International Trade and Trade regulation -...

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Lecture 4:  International trade and trade regulation Unit overview Today we begin a long unit on the economic fundamentals of globalization, the  movement of products, people, investments and ideas around the globe.  It will soon become  clear that I have a point of view about the free movement products, people, investments and  ideas, namely that it’s a good thing, that more people are better off if movement is free than if it’s  constricted.  But the position is not as simple as all that.  It’s undeniable that liberalization, the  freeing up these factors, is slowing down or even going into reverse.  Last summer, an attempt to  reform US immigration laws failed, and now the subject is off the table as far as Congress is  concerned; last month, the world trade talks collapsed, and I don’t expect them to restart any time  soon.  So even though I believe that the free movement of these economic factors is a good thing,  it’s also clear that no everyone agrees with me, and that the situation is not problem-free. So after  discussing the movement of products, people, investments and ideas, I’ll conclude the unit by  discussing what those problems are.  The first topic in the unit is the international movement of products, otherwise known as  international trade and trade regulation, both the theory of trade and the actual history of trade  regulation among countries.  The economic theory is really pretty straightforward, and is not  seriously disputed among professional economists. The trouble is the main influence on the way  international trade is regulated is not economic theory, but instead is politics of the most messy  sort, and this political component has made what is simple in theory into one of the most slow  and complicated processes in the world. Law of Comparative Advantage Trade theory was first formulated in 1819 by David Ricardo in his  Principles of Political  Economy  in the selection found in the reader, and is generally referred to as the Law of  Comparative Advantage.  It’s the theoretical justification for the belief that free trade increases  the productivity of the world’s economy, and I want to spend a few minutes explaining it .   The law is sometimes misunderstood to say that each country should specialize in  producing the things it can produce more cheaply than every other country.  This formulation is  not correct.  If it were, a country that doesn’t produce anything more cheaply than every other  country would produce nothing and import everything.  Such a conclusion is absurd.  The 
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