3 thoughts on “Protectionism is an economic blind alley”

  1. Posted 22/08/2011 at 19:08 | Permalink

    The principle of comparative advantage only works to the benefit of all on the assumption that factors of production are mobile within each country, but not between them.

    In a world of free capital movements this is not a description of reality.

  2. Posted 23/08/2011 at 10:20 | Permalink

    It is true that simple models of trade do not adequately reflect the complexity of the real world, and it is possible to demonstrate theoretically that ‘second-best’ policies might involve some interference with the market. However the empirical record of import substitution policies needs to be looked at before anybody leaps to the conclusion that governments – buffeted by often febrile public opinion, and prey to special pleading from organised interest groups – can do better.

    I don’t know where Civitas is coming from on this one, but I’ll have a look.

  3. Posted 23/08/2011 at 10:50 | Permalink

    My point is, that if you drop the assumption that capital is immobile between countries, you find that capital follows absolute advantage: it will migrate to where labour is cheapest.

    The best way to understand the difference between the two is this.

    Comparative advantage answers the question “What job should I be doing?”

    Absolute advantage answers the question “Who is the best person for the job?”

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