Classical Free Trade: A Policy Towards Economic Growth and Development

by Jorge Morales Meoqui

Institution: Vienna University of Economics and Business
Year: 2010
Keywords: RVK QM 000; free trade / comparative advantage / classical political economy / international trade theory / economic development
Record ID: 1031760
Full text PDF: http://epub.wu.ac.at/2952/1/PhD%2DTesis%2DJMM.pdf


The central aim of this dissertation is to make an unambiguous international trade policy recommendation for developing countries grounded on rigorous economic theory. As is generally known, trade models featuring increasing returns to scale and imperfect competition have challenged the mainstream case for free trade which is built upon unrealistic assumptions like constant return to scale and perfect competition. In this context, the core contribution of this dissertation is the restatement of the original free-trade case made by the classical political economists Adam Smith and David Ricardo. This restatement is based on the accurate interpretation of Ricardo's famous numerical example in chapter 7 of the Principles. The classical case for free trade formulated by Smith and Ricardo neither relies on unrealistic assumptions nor the laissez-faire doctrine. On the contrary, it stipulates that free trade should always be accompanied by public policies that expand the provision of public education, job training, health care and infrastructure. Moreover, a widespread policy change towards free trade should always be implemented gradually, in order to take care of those groups who might be affected in the short run by the increased level of international competition and technological progress. The main conclusion of the dissertation is that free trade - as conceived by classical political economy - is the most suitable international trade policy for developed as well developing countries for achieving sustainable economic growth and development. (author's abstract)