On the Gain and Loss from Trade

Abstract

This article considers a model of international trade in which the number of produced commodities does not exceed the number of countries engaged in trade. Technology is modeled such that each commodity can be produced in each country from a finite series of dated labor inputs. The existence of a positive rate of profits may lead a country to specialize differently than how it would with a zero rate of profits. Trade may leave consumers in a country worse off, as compared with autarky, when the rate of profits is positive. The existence of more than two countries provides a possibility that the Production Possibilities Frontier (PPF) with trade is neither unambiguously above or below the PPF under autarky. This article re-iterates, in a setting with more than two produced commodities and more than two countries, demonstrations that the argument for free trade is logically invalid, given positive rates of profits.