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border effects
trade theory
is just about
border effects
not purely the
locational
price/ quantity
dynamics
of open market systemsmost of the really interesting problems
of an expanding set of market systems
that come into contact
are only examined
where political arithmetic
can enter the calculation
because political borders permit states
to modify
the "spontaneous inter flow
of the two merging systems
all this recent stink about globalization
has its earlier intra national parallelsabsent the border barriers of quotas tarriffs
and ultimately exchange ratesthe policy of open trade wqould not be scrutinized
and its golden child
free trade:
where
absolutely unencumbered cross border trade
and "factor migration"
ie labor flows
would flow on and on till there was one big marketplace
of interconnected markets
only borders
can stop this
not distancesthe old golden child of
ricardian era free trade
lost its luster when gold was
de monetized
and fiat money became the reserve for international trade
now the credit
could join mechanization
to turn the gains from trade
into
a one way affair without
both national "partners"
benefittingwhen this pair of changes
became the basis of most trade
the spontaneous re - balancing
of trade
by changes
in exchange ratiosbecame non automatic
and
that auromatic system
had been necessary
to create
the long run mutual advantage
out of each nation's
comparative advantages
once this
was lost
free trade became no longer an unconditional national "good"setting aside the internal split between winners losers and neutrals
no now
trade could actually
be bad in the aggregate of one of the two nations
something
not possible comp statically at least
under the gold only system
with its long run
absence of pure credit
becomes barter thru a pair of currencies
as media of exchange
which themselves
resolve into
a ratio or barter
between them
that aslong as there is no accumulation involves no risk per seie
no contingent notion of expected future exchange ratios between the currenciesthe problem
fiat money can be supplied free of any real costs
so its future
exchangeratio
is purely discretionarythus ultimately
currency zones continue to create border effectsand balancing opportunities
this becomes important when run aways are puyrely discretional
based on scale effects or technical secretsa lowering of the local currency
ie changing
the
ratio of exchange
say from 3local units to 1 distant unit
to 5 locals to 1 foreign
can slow
--even stop --
the out flow
of production
to another region
that is not a relative advantage region
but rather
a region
pulling in
industries
producing tradeables
because of productivirty effects of scale
ie falling marginal costsa key bunch of real points
traders /importers
foreign or local nationalitybribes to a few vs a majority
given
the right mo jo
gains from trade
can be subverted
loses absorbedbig difference
if local firms
are off shoring
and re importingthen only the local wagery gets hurt
not the local caps
the classic
confrontation:
foreign cap importers
vs local cap producers never arises
Posted by pinky at October 7, 2006 07:03 PM
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