The Effect of Taxation, Specialization, and Entrepreneurial Activities on International Trading

Abstract

In this chapter, a generalization of the Ricardian model of international trading is presented. Unlike the original Ricardian analysis, the presented model takes into account the producers entrepreneurial activities, their specialization factor (the improvement factor in production due to specialization) and the countries taxes (tariffs). The main result of this model is that for a given entrepreneurial activity culture and a given specialization factor, there exists a critical taxation level, above which specialization and all entrepreneurial activities are suppressed and international commerce is ceased. The transition from a working interna- tional market to a trade-less one is an abrupt one and resembles a phase transition.