‘Domestic Inefficiency’ and Conditional Protection

H. Peter Gray
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H. Peter Gray: Rutgers University

Chapter 3 in Free Trade or Protection?, 1985, pp 22-45 from Palgrave Macmillan

Abstract: Abstract Meade’s assumption that the domestic economy operates under conditions which he defined as ‘modified laissez-faire’ does not reflect reality. Probably one the greatest weaknesses of neoclassical economic analysis is its assumption that competition is effective and pervasive, so that output is produced with minimum inputs and/or at minimum cost. In terms of the traditional argument for free trade, this failing would not be important, since foreign competition will presumably always have a beneficial effect on any imperfections which exist in the domestic economy. For example, a domestic monopoly can only be weakened, and its distorting effect only reduced, by foreign competition. In addition to the assumption of modified laissez-faire, Meade’s analysis, like all those cited in the preceding chapter, is set in static equilibrium so that historical time is not allowed to intrude upon the analysis. The exclusion of historical time effectively excludes the possibility of reversible disturbances from the set of conditions to which the free-trade argument applies.

Keywords: Wage Rate; Steel Industry; Wage Premium; International Competitiveness; European Economic Community (search for similar items in EconPapers)
Date: 1985
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-06983-5_3

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DOI: 10.1007/978-1-349-06983-5_3

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