In Pop Internationalism, Krugman defends international trade. Several ideas are put forward. The shrinking in manufacturing sectors (and its related jobs) has domestic causes, in particular the growing share of the sectors of services in the GDP. International trade with low-wage countries has nothing to do with this. The United States buys most of its imports from other advanced countries, whose workers have similar skills and wages. Imports are not so much greater than exports in the United States. While foreign competition can reduce domestic income through the terms of trade effect, it had negligible effect on the United States notably because importation represents a small share of the U.S. GDP. A country tends to export more when his relative advantage is greater than the other countries. Comparative (rather than absolute) advantage is only what matters; that is, a country with lower productivity than another country in all of his industries will still gain from trade. Competitiveness makes no sense because the U.S. income growth would not be any different in a situation where all other countries grow at equal rate than in a situation where all other countries have faster growth than the United States. A low-wage country, since it receives a large inflow of capital from a high-wage country, cannot have trade surpluses while having investment greater than savings (due to foreign capital) so they must run trade deficits. The formidable growth of the asian tigers, just like the soviet union before, is accounted for by growth in inputs (subjected to diminishing returns) but not by growth in efficiency (i.e., output per unit of input).
Pop Internationalism (Paul Krugman 1996)
Pop Internationalism (Paul Krugman 1996)
Pop Internationalism (Paul Krugman 1996)
In Pop Internationalism, Krugman defends international trade. Several ideas are put forward. The shrinking in manufacturing sectors (and its related jobs) has domestic causes, in particular the growing share of the sectors of services in the GDP. International trade with low-wage countries has nothing to do with this. The United States buys most of its imports from other advanced countries, whose workers have similar skills and wages. Imports are not so much greater than exports in the United States. While foreign competition can reduce domestic income through the terms of trade effect, it had negligible effect on the United States notably because importation represents a small share of the U.S. GDP. A country tends to export more when his relative advantage is greater than the other countries. Comparative (rather than absolute) advantage is only what matters; that is, a country with lower productivity than another country in all of his industries will still gain from trade. Competitiveness makes no sense because the U.S. income growth would not be any different in a situation where all other countries grow at equal rate than in a situation where all other countries have faster growth than the United States. A low-wage country, since it receives a large inflow of capital from a high-wage country, cannot have trade surpluses while having investment greater than savings (due to foreign capital) so they must run trade deficits. The formidable growth of the asian tigers, just like the soviet union before, is accounted for by growth in inputs (subjected to diminishing returns) but not by growth in efficiency (i.e., output per unit of input).