A critical review of the normative theory of international trade

Binh Tran-Nam

International Journal of Development and Conflict, 2016, vol. 6, issue 1, 25-46

Abstract: Recent events around the world suggest that the issue of the gains from international trade is as relevant and alive today as it was during the Mercantilist era many centuries ago. Normative trade theorists have long been striving to answer two basic questions. First, in what sense can trade be regarded as gainful (or harmful) to a country? Second, what are the circumstances under which trade is gainful (or harmful) to a trading country? The principal aim of this paper is to provide a succinct and updated review of the progress of normative trade theorists in finding answers to the above two questions. The paper suggests that it was Montesquieu, rather than Adam Smith, who raised the first question in a meaningful way. The first question is then shown to be satisfactorily answered by Pareto. However, the answer to the second question is still incomplete despite tremendous progress the past 45 years, especially in the case of finite, competitive and barter economies. The answer is incomplete in the sense that, outside the perfectly competitive framework, there is no general proposition that describes the conditions which are compatible with trade gains and conditions which are compatible with trade losses.

Keywords: Normative theory of trade; Gains from trade; Harms from trade (search for similar items in EconPapers)
JEL-codes: F11 F12 F13 (search for similar items in EconPapers)
Date: 2016
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