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S.D. Naik

International Trade & The World Economy By Charles Van Marrewijk Publishers: Oxford University Press Price: Rs 745

Over the years, international trade has been playing an increasingly important role in the economic development of nations. An important lesson of the development of the recent decades is that rapid economic growth depends on rapid export growth. The strategy of inward looking development proved to be ineffective in all countries, even the most populous ones such as Brazil, China, India and the former Soviet Union.

This book by Charles Van Marrewijk provides an up-to-date theoretical and empirical analysis of the structure and forces underlying all aspects of international economics, such as trade flows, investment flows, trade policy, multinationals, economic integration etc.

The structure of the book is organised in four parts. Part I (introduction and classical trade) provides an overview of the main economic forces in the world economy today, and of the classical explanation of the international trade flows based on opportunity costs and comparative advantage, as a result of technology differences.

Part II (neoclassical trade) analyses comparative advantage in perfectly competitive economies with identical technologies as a result of differences in factor abundance. It also discusses the distributional welfare implications of trade policy, such as tariffs, quotas, and voluntary export restraints for the classical and neoclassical models of Part I and Part II.

Part III (new trade) investigates the impact of imperfect competition, economies of scale, and product differentiation on the structure of the international economy and the size and types of its trade flows.

This `new trade' approach is the fruitful result of incorporating elements of the industrial organisation literature into international economics. This part also analyses the impact of new trade theory on strategic trade policy, discusses the main international organisations, and applies the economic insights on the structure of the world economy to an investigation of the process of economic integration in Europe.

Finally, Part IV (new interactions) brings the reader up-to-date with recent developments in international economics that have occurred in the last decade or so. These are based on new interactions between international economics and other fields of economics with economic geography leading to a better explanation of location, with international business leading to a better explanation of multinational firms, and with economic growth theory leading to a better understanding of international differences in the growth and development.

The four-part organisation of the book broadly coincides with four different modelling approaches discussed by the author to explain the international trade flows. The analysis shows that the gains from international trade depend on the structural details of the model in question.

The book presents a two-tier analysis of international trade and economic development. The body of the text represents the first tier and provides extensive explanations of the international economic system supported by limited structural analysis, empirical data, special interest boxes and applications. The second tier of the analysis is provided by technical notes at the end of most chapters, which explicitly derive most results used and discussed in the body of the text.

One chapter is devoted to international trade organisations such as the General Agreement on Tariffs and Trade (GATT), UN Conference on Trade and Development (UNCTAD), Organisation of Economic Co-operation and Development (OECD), the World Trade Organisation (WTO) etc.

The theme that runs throughout the book is that taking all static and dynamic gains of trade liberalisation, it is probably optimal to allow free trade regardless of whether other countries do the same. The discussion on trade policy emphasises the importance of international economic contacts through exchange of goods, capital, foreign direct investment, knowledge, ideas etc.

The benefits of trade are explained by citing examples of North and South Korea, East and West Germany and the recent developments in China. Discussing the dynamic costs of trade restrictions, it is shown how after the 1953 Korean ceasefire, the North Korean economy deteriorated steadily over the next five decades because of its total isolation. In sharp contrast, South Korea, which aggressively focused on expansion on the world market using knowledge and capital goods from all over the world, achieved enormous rise in living standards for its people.

In the case of China, it is shown how the economic reforms from 1979 onwards helped it to attract increasing FDI flows and increase its exports manifold. The FDI into China rose from just about 1 per cent of GNP during 1988-91 to a peak of 6 per cent of GNP in 1993 and 1994. Since then it has stabilised at around 5 per cent of GNP per annum.

The book also contains brief sketches and contributions of the great economists of classical and neoclassical era as also the modern times, including the living legends and acquaints the readers of their contributions, particularly in the area of international economics. Students of economics, teachers, academicians, research workers and policy makers will find the book immensely useful.

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