World trade organization (WTO)

Sorry, I didn't have time to watch your movie.



There's a lot of truth to Ricardo's theory, especially in the short run, but it's a simplistic view to take when analysing what's best for a developing country in the long run. The downside to what you're talking about is that the less developed country will often get stuck producing what it is best at producing. If it's a country with great mineral wealth, it will get stuck exporting its mineral wealth. It will tend to focus on a backwards industry and won't grow.



The debate is not about whether we should engage in trade or retreat to isolationism. Instead it centres on exactly what restrictions developing countries should agree to which limit the extent to which they are able to regulate the flow of goods across their borders. The WTO also wants to limit countries' ability to regulate economic activity within their own borders.

I generally don't think much about Development Economics these days, but if you are interested in reading the view opposed to unrestricted free trade you could try reading Ha-Joon Chang's Bad Samaritans. It gives a bird's eye view of all the tricks the Asian Tiger Economies employed to bring themselves almost level with the developed world. The WTO rules prevent newly emerging economies from acting in the same way.

So, do you think unrestricted free trade is good, or bad? You said Ricardo's theory is to simplistic. Well, what is a better theory? In fact, I am pretty good with math. What is the latest mathematical model for the pro, and con of unrestricted free trade.

Some restrictions on trade may help countries develop. If that is the case, then totally unrestricted trade will prevent them from developing. I guess whether you see that as "good" or "bad" depends on your point of view and the kind of world you want.

(Note: when I talk about restrictions on trade, I don't necessarily mean tariffs or import quotas. For example, some countries in the past insisted on "local employment" quotas, which meant that foreign firms operating on the countries' soil had to employ a certain number of local personnel in managerial roles. That helped the developing country mature, because it provided locals with training on how to run manufacturing businesses. I believe there are WTO rules that forbid laws like that.)

Now as far the WTO's merits as an institution are concerned, I am agnostic. I simply do not know enough about them to give them a straight thumbs up or thumbs down. I think it's good to have some kind large organisation keeping us all from engaging in protectionist trade wars. But some demands that the WTO places on developing countries go too far.



I don't know what the latest and best theories are, since I've only taken undergrad courses in Economics. However, one good book that I liked for an introduction to the "pro" theories was Feenstra and Taylor's International Economics. It's a nice book, because it attempts to test the various pro-trade theories empirically, which turns out to be a very challenging job.

The major problem with the "con" side is that they don't rely on math. It may simply be the case that their arguments are so complicated that they defy neat mathematical description.

Anyway, Ricardo's theory isn't wrong. Just think about what it basically says: on the whole, we produce more when each of us does what he/she is best at. Obviously that's true. However, just because Einstein's skills made him a very productive patent office clerk in 1903, it doesn't mean the world as whole would have been better off if he had continued focusing all his energies on the patent office. I figure it's the same with countries.