Page 9 - DECO503_INTERNATIONAL_TRADE_AND_FINANCE_ENGLISH

Unit 1 : Trade as an Engine of Growth

intensifying the ability and skills of workers, of encouraging technical innovations and the Notes
accumulation of capital, of making it possible to overcome technical indivisibilities and, generally
speaking, of giving participating countries the possibility of enjoying EG.
However, in view of the limitations of land, both in quantity and in quality, the additional alimentary
resources were obtained in conditions of decreasing returns, in which the production is absorbed by
wages in an increasing proportion, reducing the stimulation of new investments and, sooner or later,
reaching the ‘stationary state’. IT could delay the fall in the rate of profit. Apart from the contribution
of IT, underestimating the importance of technology, he underestimated the positive effects of IT on
technology.
Finally, among the Classics, Mill (1848) also explicitly reported the Classic point of view according to
which the production resulted from labour, capital, land and their productivities. And just like Ricardo,
he recognized that underlying the ‘progressive state’ there was the ‘stationary state’, and that ultimately
the force capable of delaying this state was technical progress. Accordingly, the emphasis that Smith
had placed on the extension of the market decreases, even though he also defended free trade among
countries. We think that this situation was the result of the expectation created by the Industrial
Revolution (IR) in regards to technical progress.
1.3 Post Classical Period : International Trade and Growth

The structure of this section takes into account the separation that occurred between IT and EG theories,
and takes also into consideration some reactions to the classical and neoclassical theories. We begin
with the neoclassical IT theory, proceed to the post-classical EG, before Solow, and then go on to the
reactions. Afterwards comes the modern neoclassical theory of EG, and we conclude with the disclosure
of extensions or works of synthesis, applications, and studies of commercial policies that discuss the
theme under analysis.
Neoclassical International Trade

The followers of Ricardo ignored the question of the foundations of comparative advantages and
didn’t identify factors, resulting from IT, that could raise, in a lasting form, the rate of EG and its
tendency in the long-term. In general, the changes introduced in the ricardian theory demonstrated
the increase of welfare caused by IT, but ignored eventual gains in the rate of EG. It was in the context
of neoclassical general equilibrium that the model of Heckscher (1919) and Ohlin (1933) appeared,
whose contributions Samuelson (1948 and 1949) completed in the late 40’s. In a rigid analysis of the
model, we observe that it permits to advocate the opening of the countries to IT, showing that it is
efficient, mutually beneficial and positive for the entire world. However, it limits the analysis to the
static gains of welfare.

Post-classical Growth, before Solow
Generically, the classical economists gave us an idea of the race between the increase of the population
and EG, with an uncertain winner. This version gradually disappeared with the IR, because the
product increased from decade to decade in increasingly larger areas. That might be the reason why
EG was no longer seen as a problem and why it wasn’t amply pursued in the studies and writings of
the following economists.

Classical thought gave way to ‘marginalism’ from the 1870s onwards. This fact led to a
‘new theory’ (neoclassical) which, for some time, kept the main lines of the evolution of
the economy in the long-term away from the studies.

Nevertheless, Marshall (1890) pointed out that “The causes which determine the economic progress
of nations belong to the study of international trade”. In effect, the expansion of the market that it

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