International Trade and Economic Expansion

Bhagwati, Jagdish N.

The recent literature on the effects of economic expansion on international trade has been concerned with two principal problems, the impact of the expansion on the terms of trade and the resultant change in the welfare of the trading nations. To simplify the analysis, economic expansion, defined as the country’s capacity to produce extra output at constant relative commodity prices. The analytical technique outlined is perfectly general and can be utilized for determining the output elasticities of supply under other types of expansion as well, such as neutral technical progress in an activity. It would thus be feasible to undertake an interesting taxonomic exercise to consider different varieties of expansion and investigate the output elasticities of supply and demand implied and to relate them with different values for the substitution elasticities to discover the full impact on the terms of trade of expansion under different circumstances. This represents, therefore, the change in the domestic production of importables directly as a result of expansion, at constant terms of trade.



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American Economic Review

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November 16, 2012