Quantitative estimates of trade liberalisation - methods and results

Abstract

The economic benefits of trade liberalisation are conventionally divided into two parts: static gains and dynamic gains. Static gains refer to the advantages of increased specialisation arising from easier access to international markets. They lie at the core of the classical theory of comparative advantage. It was static gains Ricardo had in mind in his famed and much-debated assertion that international trade increases 'the mass of commodities and the sum' of enjoyments'. Other benefits, however, may accrue. First, freer trade may lead to more exploitation of economies of scale. Secondly, it may create more competitive conditions in national markets thereby increasing productive efficiency. Finally, faster economic growth may ensue on account of enhanced long-run investment opportunities. For example, it is argued that industries producing new technically-sophisticated products will develop only in the context of extremely large integrated markets. These last three types of gain constitute the dynamic gains from international trade.