Gains from trade

Gains from trade are commonly described as resulting from:

• specialization in production from division of labor, economies of scale, scope, and agglomeration   • Paul R. Krugman, 1979. "Increasing Returns, Monopolistic Competition, and International Trade," . Journal of International Economics, 9(4), pp. 469–79. {{doi|10.1016/0022-1996(79)90017-5}}
     • _____, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, 70(5), pp. 950–59. {{JSTOR|1805774}}
     • _____, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, 99(3), pp. 483–99. {{doi|10.1086/261763}}
     • _____, 1981. "Intraindustry Specialization and the Gains from Trade," Journal of Political Economy, 89(5), pp. 959–73. {{doi|10.1086/261015}}
     • William C. Strange, 2008, "urban agglomeration," The New Palgrave Dictionary of Economics, 2nd Edition. [http://www.dictionaryofeconomics.com/article?id=pde2008_U000064&q=agglomeration&topicid=&result_number=1 Abstract.] and relative availability of factor resources in types of output by farms, businesses, locationAnthony Venables, 2008. "new economic geography," The New Palgrave Dictionary of Economics, 2nd Edition. [http://www.dictionaryofeconomics.com/article?id=pde2008_E000247&edition=&field=keyword&q=industrial%20organization&topicid=&result_number=13 Abstract.] and economies
• a resulting increase in total output possibilities
• trade through markets from sale of one type of output for other, more highly valued goods.Paul A. Samuelson and William D. Nordhaus, 2004. Economics, McGraw-Hill, ch. 2, "Trade, Specialization, and Division of Labor" section.

Market incentives, such as reflected in prices of outputs and inputs, are theorized to attract factors of production, including labor, into activities according to comparative advantage, that is, for which they each have a low opportunity cost. The factor owners then use their increased income from such specialization to buy more-valued goods of which they would otherwise be high-cost producers, hence their gains from trade. The concept may be applied to an entire economy for the alternatives of autarky (no trade) or trade. A measure of total gains from trade is the sum of consumer surplus and producer profits or, more roughly, the increased output from specialization in production with resulting trade.Paul A. Samuelson and William D. Nordhaus, 2004. Economics, ch. 12, 15, "Comparative Advantage among Nations" section," "Glossary of Terms," Gains from trade. Gains from trade may also refer to net benefits to a country from lowering barriers to trade such as tariffs on imports.Alan V. Deardorff, Glossary of International Economics], 2006. [http://www-personal.umich.edu/~alandear/glossary/g.html#GainsFromTrade "Gains from trade."]

David Ricardo in 1817 first clearly stated and proved the principle of comparative advantage,David Ricardo, 1817. On the Principles of Political Economy and Taxation. termed a "fundamental analytical explanation" for the source of gains from trade.Ronald Findlay, 2008. "comparative advantage," The New Palgrave Dictionary of Economics, 2nd Edition, 1st paragraph. [http://www.dictionaryofeconomics.com/article?id=pde2008_C000254&edition=current&q=comparative%20advantage&topicid=&result_number=1 Abstract]. But from publication of Adam Smith's The Wealth of Nations in 1776, it was widely argued, that, with competition and absent market distortions, such gains are positive in moving toward free trade and away from autarky or prohibitively high import tariffs. Rigorous early contemporary statements of the conditions under which this proposition holds are found in Samuelson in 1939 and 1962.• Paul A. Samuelson, 1939. "The Gains from International Trade," Canadian Journal of Economics and Political Science 5(2), pp. 195-205. {{JSTOR|137133}}

   • _____, 1962. "The Gains from International Trade Once Again," Economic Journal, 72(288), pp. [http://stevereads.com/papers_to_read/the_gains_from_international_trade_once_again.pdf 820-829.] {{Webarchive|url=https://web.archive.org/web/20110723030913/http://stevereads.com/papers_to_read/the_gains_from_international_trade_once_again.pdf |date=2011-07-23 }}
   • Alan V. Deardorff, 2006. Glossary of International Economics, [http://www-personal.umich.edu/~alandear/glossary/g.html#GainsFromTradeTheorem "Gains from trade theorem".] For the analytically tractable general case of Arrow-Debreu goods, formal proofs came in 1972 for determining the condition of no losers in moving from autarky toward free trade.Murray C. Kemp and Henry Y. Wan, Jr., 1972. "The Gains from Free Trade," International Economic Review, 13(3), pp.509-522. {{JSTOR|2525840}}

The proof does not state that no involvement is the best economic outcome. Rather, a large economy might be able to set taxes and subsidies to its benefit at the expense of other economies. Later results of Kemp and others showed that in an Arrow-Debreu world with a system of lump-sum compensatory mechanisms, corresponding to a customs union for a given subset set of countries (described by free trade among a group of economies and a common set of tariffs), there is a common set of world tariffs such that no country would be worse off than in the smaller customs union. The suggestion is that if a customs union has advantages for an economy, there is a worldwide customs union that is at least as good for each country in the world.• Murray C. Kemp 1987. "gains from trade," J. Eatwell, M. Milgate, P. Newman, eds. The New Palgrave: A Dictionary of Economics. Palgrave Macmillan, 453-454.
   • Ronald Findlay, 2008. "comparative advantage," The New Palgrave Dictionary of Economics, 2nd Edition. [http://www.dictionaryofeconomics.com/article?id=pde2008_C000254&edition=current&q= Abstract.]
   • James E. Anderson, 2008. "international trade theory," The New Palgrave Dictionary of Economics, 2nd Edition. [http://www.dictionaryofeconomics.com/article?id=pde2008_I000263&edition=current&q=&topicid= Abstract.]

• Comparative advantage
• Doux commerce
• Free trade
• Terms of trade
• Trade

{{reflist}}

• Jagdish N. Bhagwati, Arvind Panagariya, and T. N. Srinivasan, 1998, 2nd ed. [https://books.google.com/books?id=zKC6EsxVb8kC&pg=PA281 Lectures on International Trade], ch. 18 & 19, pp. 265-79.
• Giovanni Facchini and Gerald Willmann, 2001. "Pareto Gains from Trade," Economia Politica, pp. 207-216. [https://web.archive.org/web/20110902110246/http://willmann.econ.kuleuven.be/~gerald/gft.pdf 1999 preprint version.]
• Murray C. Kemp, 1995. [https://books.google.com/books?id=DHib6oy1bCIC The Gains from Trade and the Gains From Aid: Essays in International Trade Theory.]
• Paul R. Krugman, 1987. "Is Free Trade Passé?" Journal of Economic Perspectives, 1(2), pp. 131-144. {{doi|10.1257/jep.1.2.131}}
• Joy Mazumdar, 1996. "Do Static Gains from Trade Lead to Medium-Run Growth?" Journal of Political Economy, 104(6), 1996, pp. 1328-1337. {{JSTOR|2138942}}
• Dr, Mrs. Mangla P. Jahgle, Dr. Mrs. Madhura Joshi, Mrs. Sumati V. Shinde, "International Economics",ed 2008, ch 5, pp 122–125
• M.L Jhingan,"International Economics",ed 2008,ch 16,pp 155
• K.K. Dewett, "Modern Economic Theory",2008,ch 55,pp 671–672

• [http://arnoldkling.com/econ/markets/trade.html Gains from Trade], from "International Trade," Arnold Kling
• [https://web.archive.org/web/20110720040300/http://www.econ.rochester.edu/eco108/ch9/summ9.html Summary: Main Points on Economic Efficiency and the Gains from Trade], including graphs for consumer surplus and producer surplus
• [http://www.mayin.org/ajayshah/MEDIA/1997/gt-internal.html], Gains from internal trade
• [http://volij.co.il/publications/papers/pitfalls.pdf] Oscar Volij

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Category:Free trade

Category:Urban, rural, and regional economics