Upload
buikien
View
224
Download
0
Embed Size (px)
Citation preview
From Ricardo to Brexitand Beyond
J. Peter Neary
University of Oxford, CEPR, and CESifo
Esmee Fairbairn LectureUniversity of Lancaster
November 28, 2017
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 1 / 29
Introduction
Trade@200
David Ricardo, 1772-1823
“On the Principles of Political Economy and Taxation” (1817)
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 2 / 29
Introduction
Ricardo the Man
Born into an immigrant family
Successful stockbroker
Country gentleman
Liberal parliamentarian
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 3 / 29
Introduction
Ricardo the Man
Born into an immigrant family
Successful stockbroker
Country gentleman
Liberal parliamentarian
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 3 / 29
Introduction
Ricardo the Man
Born into an immigrant family
Successful stockbroker
Country gentleman
Liberal parliamentarian
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 3 / 29
Introduction
Ricardo the Man
Born into an immigrant family
Successful stockbroker
Country gentleman
Liberal parliamentarian
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 3 / 29
Introduction
Outline
1 The Dawn of Economic Theory
2 David Ricardo’s Big Idea: Trade and Comparative Advantage
3 Trade and Income Distribution
4 What Ricardo Didn’t Know
5 Policy Relevance
6 Conclusion
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 4 / 29
The Dawn of Economic Theory
Outline
1 The Dawn of Economic Theory
2 David Ricardo’s Big Idea: Trade and Comparative Advantage
3 Trade and Income Distribution
4 What Ricardo Didn’t Know
5 Policy Relevance
6 Conclusion
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 5 / 29
The Dawn of Economic Theory
Economics as a Science
David Ricardo: The Founder of Economic Theory
Deliberately simplified assumptions ...
... plus abstract reasoning ...
... ... leading to general principles
The second essential ingredient for economics as a science
The first: Adam Smith’s broad perspective and concern with empirics
Especially important to the theory of international trade
Provided canonical answers to two of the three main questions in thefield
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 6 / 29
The Dawn of Economic Theory
Economics as a Science
David Ricardo: The Founder of Economic Theory
Deliberately simplified assumptions ...
... plus abstract reasoning ...
... ... leading to general principles
The second essential ingredient for economics as a science
The first: Adam Smith’s broad perspective and concern with empirics
Especially important to the theory of international trade
Provided canonical answers to two of the three main questions in thefield
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 6 / 29
The Dawn of Economic Theory
Economics as a Science
David Ricardo: The Founder of Economic Theory
Deliberately simplified assumptions ...
... plus abstract reasoning ...
... ... leading to general principles
The second essential ingredient for economics as a science
The first: Adam Smith’s broad perspective and concern with empirics
Especially important to the theory of international trade
Provided canonical answers to two of the three main questions in thefield
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 6 / 29
The Dawn of Economic Theory
Economics as a Science
David Ricardo: The Founder of Economic Theory
Deliberately simplified assumptions ...
... plus abstract reasoning ...
... ... leading to general principles
The second essential ingredient for economics as a science
The first: Adam Smith’s broad perspective and concern with empirics
Especially important to the theory of international trade
Provided canonical answers to two of the three main questions in thefield
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 6 / 29
The Dawn of Economic Theory
Economics as a Science
David Ricardo: The Founder of Economic Theory
Deliberately simplified assumptions ...
... plus abstract reasoning ...
... ... leading to general principles
The second essential ingredient for economics as a science
The first: Adam Smith’s broad perspective and concern with empirics
Especially important to the theory of international trade
Provided canonical answers to two of the three main questions in thefield
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 6 / 29
The Dawn of Economic Theory
Economics as a Science
David Ricardo: The Founder of Economic Theory
Deliberately simplified assumptions ...
... plus abstract reasoning ...
... ... leading to general principles
The second essential ingredient for economics as a science
The first: Adam Smith’s broad perspective and concern with empirics
Especially important to the theory of international trade
Provided canonical answers to two of the three main questions in thefield
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 6 / 29
The Dawn of Economic Theory
Economics as a Science
David Ricardo: The Founder of Economic Theory
Deliberately simplified assumptions ...
... plus abstract reasoning ...
... ... leading to general principles
The second essential ingredient for economics as a science
The first: Adam Smith’s broad perspective and concern with empirics
Especially important to the theory of international trade
Provided canonical answers to two of the three main questions in thefield
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 6 / 29
The Dawn of Economic Theory
Economics as a Science
David Ricardo: The Founder of Economic Theory
Deliberately simplified assumptions ...
... plus abstract reasoning ...
... ... leading to general principles
The second essential ingredient for economics as a science
The first: Adam Smith’s broad perspective and concern with empirics
Especially important to the theory of international trade
Provided canonical answers to two of the three main questions in thefield
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 6 / 29
The Dawn of Economic Theory
Economics as a Science
David Ricardo: The Founder of Economic Theory
Deliberately simplified assumptions ...
... plus abstract reasoning ...
... ... leading to general principles
The second essential ingredient for economics as a science
The first: Adam Smith’s broad perspective and concern with empirics
Especially important to the theory of international trade
Provided canonical answers to two of the three main questions in thefield
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 6 / 29
The Dawn of Economic Theory
Economics as a Science
David Ricardo: The Founder of Economic Theory
Deliberately simplified assumptions ...
... plus abstract reasoning ...
... ... leading to general principles
The second essential ingredient for economics as a science
The first: Adam Smith’s broad perspective and concern with empirics
Especially important to the theory of international trade
Provided canonical answers to two of the three main questions in thefield
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 6 / 29
The Dawn of Economic Theory
Economics as a Science
David Ricardo: The Founder of Economic Theory
Deliberately simplified assumptions ...
... plus abstract reasoning ...
... ... leading to general principles
The second essential ingredient for economics as a science
The first: Adam Smith’s broad perspective and concern with empirics
Especially important to the theory of international trade
Provided canonical answers to two of the three main questions in thefield
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 6 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Outline
1 The Dawn of Economic Theory
2 David Ricardo’s Big Idea: Trade and Comparative Advantage
3 Trade and Income Distribution
4 What Ricardo Didn’t Know
5 Policy Relevance
6 Conclusion
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 7 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 0.0
Trade Theory 0.0: Mercantilism
Exports and trade surpluses are good, imports are bad
A zombie theory:
Trump: “American carnage”; “protection will lead to great prosperity”
Peter Navarro (Director, White House National Trade Council):“Death by China” (2011)
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 8 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 0.0
Trade Theory 0.0: Mercantilism
Exports and trade surpluses are good, imports are bad
A zombie theory:
Trump: “American carnage”; “protection will lead to great prosperity”
Peter Navarro (Director, White House National Trade Council):“Death by China” (2011)
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 8 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 0.0
Trade Theory 0.0: Mercantilism
Exports and trade surpluses are good, imports are bad
A zombie theory:
Trump: “American carnage”; “protection will lead to great prosperity”
Peter Navarro (Director, White House National Trade Council):“Death by China” (2011)
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 8 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 0.0
Trade Theory 0.0: Mercantilism
Exports and trade surpluses are good, imports are bad
A zombie theory:
Trump: “American carnage”; “protection will lead to great prosperity”
Peter Navarro (Director, White House National Trade Council):“Death by China” (2011)
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 8 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 0.0
Trade Theory 0.0: Mercantilism
Exports and trade surpluses are good, imports are bad
A zombie theory:
Trump: “American carnage”; “protection will lead to great prosperity”
Peter Navarro (Director, White House National Trade Council):“Death by China” (2011)
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 8 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 0.0
Trade Theory 0.0: Mercantilism
Exports and trade surpluses are good, imports are bad
A zombie theory:
Trump: “American carnage”; “protection will lead to great prosperity”
Peter Navarro (Director, White House National Trade Council):“Death by China” (2011)
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 8 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 0.0
Trade Theory 0.0: Mercantilism
Exports and trade surpluses are good, imports are bad
A zombie theory:
Trump: “American carnage”; “protection will lead to great prosperity”
Peter Navarro (Director, White House National Trade Council):“Death by China” (2011)
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 8 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 0.0
Trade Theory 0.0: Mercantilism
Exports and trade surpluses are good, imports are bad
A zombie theory:
Trump: “American carnage”; “protection will lead to great prosperity”
Peter Navarro (Director, White House National Trade Council):“Death by China” (2011)
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 8 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!
Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!
Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!
Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!
Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!
Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!
Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!
Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!
Europe is more efficient at producing cars than China ...
... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...
... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...
... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?
But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?
But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?
And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?
And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...
... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...
... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?
But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?
But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaply
Ahhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaply
Ahhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?
But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?
But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:
Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:Europe is exploiting poor countries because it is more efficient
... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:Europe is exploiting poor countries because it is more efficient
... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:Europe is exploiting poor countries because it is more efficient... or ...
China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Before Ricardo: Trade Theory 1.0
Trade Theory 1.0: Absolute Advantage (Adam Smith)
A big advance over mercantilism
A central determinant of absolute living standards and trade volumes
But, as a theory of trade patterns: clear, simple, and wrong!
The curse of common sense!Europe is more efficient at producing cars than China ...... so Europe should export cars to China. Right?But isn’t “efficiency” measured in real terms (e.g., labour productivity)?And Europe is also more efficient at producing textiles than China ...... so Europe should also export textiles to China?But Chinese wages are much lower, so it produces textiles more cheaplyAhhhh! So it’s all about “efficiency” measured in money terms?But at Chinese wages, they could produce cars more cheaply ...
And indulges common-sense prejudices:Europe is exploiting poor countries because it is more efficient... or ...China is competing unfairly: its wages and/or its currency are too low
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 9 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Trade Theory 2.0: Comparative Advantage
Ricardo’s Big Idea: Comparative Advantage
Counter-intuitive
Samuelson: “thousands of important and intelligent men [sic] ... havenever been able to grasp the doctrine for themselves or to believe itafter it was explained to them.”
Emphasises not just differences, but differences in differences:[Costinot (2009)]
Relative to China, Europe is relatively more efficient at producing carsthan textiles ...... so Europe will export cars, China textiles.Double difference gets rid of exchange rates, wages, etc.They matter, but not for composition of trade
Predicts trade patterns and aggregate gains from trade
Both countries gain: Trade not a zero-sum game
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 10 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Trade Theory 2.0: Comparative Advantage
Ricardo’s Big Idea: Comparative Advantage
Counter-intuitive
Samuelson: “thousands of important and intelligent men [sic] ... havenever been able to grasp the doctrine for themselves or to believe itafter it was explained to them.”
Emphasises not just differences, but differences in differences:[Costinot (2009)]
Relative to China, Europe is relatively more efficient at producing carsthan textiles ...... so Europe will export cars, China textiles.Double difference gets rid of exchange rates, wages, etc.They matter, but not for composition of trade
Predicts trade patterns and aggregate gains from trade
Both countries gain: Trade not a zero-sum game
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 10 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Trade Theory 2.0: Comparative Advantage
Ricardo’s Big Idea: Comparative Advantage
Counter-intuitive
Samuelson: “thousands of important and intelligent men [sic] ... havenever been able to grasp the doctrine for themselves or to believe itafter it was explained to them.”
Emphasises not just differences, but differences in differences:[Costinot (2009)]
Relative to China, Europe is relatively more efficient at producing carsthan textiles ...... so Europe will export cars, China textiles.Double difference gets rid of exchange rates, wages, etc.They matter, but not for composition of trade
Predicts trade patterns and aggregate gains from trade
Both countries gain: Trade not a zero-sum game
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 10 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Trade Theory 2.0: Comparative Advantage
Ricardo’s Big Idea: Comparative Advantage
Counter-intuitive
Samuelson: “thousands of important and intelligent men [sic] ... havenever been able to grasp the doctrine for themselves or to believe itafter it was explained to them.”
Emphasises not just differences, but differences in differences:[Costinot (2009)]
Relative to China, Europe is relatively more efficient at producing carsthan textiles ...... so Europe will export cars, China textiles.Double difference gets rid of exchange rates, wages, etc.They matter, but not for composition of trade
Predicts trade patterns and aggregate gains from trade
Both countries gain: Trade not a zero-sum game
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 10 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Trade Theory 2.0: Comparative Advantage
Ricardo’s Big Idea: Comparative Advantage
Counter-intuitive
Samuelson: “thousands of important and intelligent men [sic] ... havenever been able to grasp the doctrine for themselves or to believe itafter it was explained to them.”
Emphasises not just differences, but differences in differences:[Costinot (2009)]
Relative to China, Europe is relatively more efficient at producing carsthan textiles ...... so Europe will export cars, China textiles.Double difference gets rid of exchange rates, wages, etc.They matter, but not for composition of trade
Predicts trade patterns and aggregate gains from trade
Both countries gain: Trade not a zero-sum game
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 10 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Trade Theory 2.0: Comparative Advantage
Ricardo’s Big Idea: Comparative Advantage
Counter-intuitive
Samuelson: “thousands of important and intelligent men [sic] ... havenever been able to grasp the doctrine for themselves or to believe itafter it was explained to them.”
Emphasises not just differences, but differences in differences:[Costinot (2009)]
Relative to China, Europe is relatively more efficient at producing carsthan textiles ...... so Europe will export cars, China textiles.Double difference gets rid of exchange rates, wages, etc.They matter, but not for composition of trade
Predicts trade patterns and aggregate gains from trade
Both countries gain: Trade not a zero-sum game
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 10 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Trade Theory 2.0: Comparative Advantage
Ricardo’s Big Idea: Comparative Advantage
Counter-intuitive
Samuelson: “thousands of important and intelligent men [sic] ... havenever been able to grasp the doctrine for themselves or to believe itafter it was explained to them.”
Emphasises not just differences, but differences in differences:[Costinot (2009)]
Relative to China, Europe is relatively more efficient at producing carsthan textiles ...... so Europe will export cars, China textiles.Double difference gets rid of exchange rates, wages, etc.They matter, but not for composition of trade
Predicts trade patterns and aggregate gains from trade
Both countries gain: Trade not a zero-sum game
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 10 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Trade Theory 2.0: Comparative Advantage
Ricardo’s Big Idea: Comparative Advantage
Counter-intuitive
Samuelson: “thousands of important and intelligent men [sic] ... havenever been able to grasp the doctrine for themselves or to believe itafter it was explained to them.”
Emphasises not just differences, but differences in differences:[Costinot (2009)]
Relative to China, Europe is relatively more efficient at producing carsthan textiles ...
... so Europe will export cars, China textiles.Double difference gets rid of exchange rates, wages, etc.They matter, but not for composition of trade
Predicts trade patterns and aggregate gains from trade
Both countries gain: Trade not a zero-sum game
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 10 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Trade Theory 2.0: Comparative Advantage
Ricardo’s Big Idea: Comparative Advantage
Counter-intuitive
Samuelson: “thousands of important and intelligent men [sic] ... havenever been able to grasp the doctrine for themselves or to believe itafter it was explained to them.”
Emphasises not just differences, but differences in differences:[Costinot (2009)]
Relative to China, Europe is relatively more efficient at producing carsthan textiles ...
... so Europe will export cars, China textiles.Double difference gets rid of exchange rates, wages, etc.They matter, but not for composition of trade
Predicts trade patterns and aggregate gains from trade
Both countries gain: Trade not a zero-sum game
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 10 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Trade Theory 2.0: Comparative Advantage
Ricardo’s Big Idea: Comparative Advantage
Counter-intuitive
Samuelson: “thousands of important and intelligent men [sic] ... havenever been able to grasp the doctrine for themselves or to believe itafter it was explained to them.”
Emphasises not just differences, but differences in differences:[Costinot (2009)]
Relative to China, Europe is relatively more efficient at producing carsthan textiles ...... so Europe will export cars, China textiles.
Double difference gets rid of exchange rates, wages, etc.They matter, but not for composition of trade
Predicts trade patterns and aggregate gains from trade
Both countries gain: Trade not a zero-sum game
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 10 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Trade Theory 2.0: Comparative Advantage
Ricardo’s Big Idea: Comparative Advantage
Counter-intuitive
Samuelson: “thousands of important and intelligent men [sic] ... havenever been able to grasp the doctrine for themselves or to believe itafter it was explained to them.”
Emphasises not just differences, but differences in differences:[Costinot (2009)]
Relative to China, Europe is relatively more efficient at producing carsthan textiles ...... so Europe will export cars, China textiles.
Double difference gets rid of exchange rates, wages, etc.They matter, but not for composition of trade
Predicts trade patterns and aggregate gains from trade
Both countries gain: Trade not a zero-sum game
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 10 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Trade Theory 2.0: Comparative Advantage
Ricardo’s Big Idea: Comparative Advantage
Counter-intuitive
Samuelson: “thousands of important and intelligent men [sic] ... havenever been able to grasp the doctrine for themselves or to believe itafter it was explained to them.”
Emphasises not just differences, but differences in differences:[Costinot (2009)]
Relative to China, Europe is relatively more efficient at producing carsthan textiles ...... so Europe will export cars, China textiles.Double difference gets rid of exchange rates, wages, etc.
They matter, but not for composition of trade
Predicts trade patterns and aggregate gains from trade
Both countries gain: Trade not a zero-sum game
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 10 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Trade Theory 2.0: Comparative Advantage
Ricardo’s Big Idea: Comparative Advantage
Counter-intuitive
Samuelson: “thousands of important and intelligent men [sic] ... havenever been able to grasp the doctrine for themselves or to believe itafter it was explained to them.”
Emphasises not just differences, but differences in differences:[Costinot (2009)]
Relative to China, Europe is relatively more efficient at producing carsthan textiles ...... so Europe will export cars, China textiles.Double difference gets rid of exchange rates, wages, etc.
They matter, but not for composition of trade
Predicts trade patterns and aggregate gains from trade
Both countries gain: Trade not a zero-sum game
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 10 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Trade Theory 2.0: Comparative Advantage
Ricardo’s Big Idea: Comparative Advantage
Counter-intuitive
Samuelson: “thousands of important and intelligent men [sic] ... havenever been able to grasp the doctrine for themselves or to believe itafter it was explained to them.”
Emphasises not just differences, but differences in differences:[Costinot (2009)]
Relative to China, Europe is relatively more efficient at producing carsthan textiles ...... so Europe will export cars, China textiles.Double difference gets rid of exchange rates, wages, etc.They matter, but not for composition of trade
Predicts trade patterns and aggregate gains from trade
Both countries gain: Trade not a zero-sum game
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 10 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Trade Theory 2.0: Comparative Advantage
Ricardo’s Big Idea: Comparative Advantage
Counter-intuitive
Samuelson: “thousands of important and intelligent men [sic] ... havenever been able to grasp the doctrine for themselves or to believe itafter it was explained to them.”
Emphasises not just differences, but differences in differences:[Costinot (2009)]
Relative to China, Europe is relatively more efficient at producing carsthan textiles ...... so Europe will export cars, China textiles.Double difference gets rid of exchange rates, wages, etc.They matter, but not for composition of trade
Predicts trade patterns and aggregate gains from trade
Both countries gain: Trade not a zero-sum game
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 10 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Trade Theory 2.0: Comparative Advantage
Ricardo’s Big Idea: Comparative Advantage
Counter-intuitive
Samuelson: “thousands of important and intelligent men [sic] ... havenever been able to grasp the doctrine for themselves or to believe itafter it was explained to them.”
Emphasises not just differences, but differences in differences:[Costinot (2009)]
Relative to China, Europe is relatively more efficient at producing carsthan textiles ...... so Europe will export cars, China textiles.Double difference gets rid of exchange rates, wages, etc.They matter, but not for composition of trade
Predicts trade patterns and aggregate gains from trade
Both countries gain: Trade not a zero-sum game
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 10 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Trade Theory 2.0: Comparative Advantage
Ricardo’s Big Idea: Comparative Advantage
Counter-intuitive
Samuelson: “thousands of important and intelligent men [sic] ... havenever been able to grasp the doctrine for themselves or to believe itafter it was explained to them.”
Emphasises not just differences, but differences in differences:[Costinot (2009)]
Relative to China, Europe is relatively more efficient at producing carsthan textiles ...... so Europe will export cars, China textiles.Double difference gets rid of exchange rates, wages, etc.They matter, but not for composition of trade
Predicts trade patterns and aggregate gains from trade
Both countries gain: Trade not a zero-sum game
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 10 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Comparative Advantage: The Scientific Legacy
Sets an agenda for theory and empirics
Broadly consistent with trade patterns between countries that differsignificantly
Though proper scientific confirmation took longer
Early empirical studies hampered by theory’s low dimensionality[MacDougall (1951)]
Theory needed to be generalized[Dornbusch, Fischer, and Samuelson (1977), Eaton and Kortum (2002)]
Which has allowed confirmation and quantification[Costinot, Donaldson, and Komunjer (2012)]
What about the legacy for policy?
Universal free trade?
Not really ... for reasons that Ricardo also made clear
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 11 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Comparative Advantage: The Scientific Legacy
Sets an agenda for theory and empirics
Broadly consistent with trade patterns between countries that differsignificantly
Though proper scientific confirmation took longer
Early empirical studies hampered by theory’s low dimensionality[MacDougall (1951)]
Theory needed to be generalized[Dornbusch, Fischer, and Samuelson (1977), Eaton and Kortum (2002)]
Which has allowed confirmation and quantification[Costinot, Donaldson, and Komunjer (2012)]
What about the legacy for policy?
Universal free trade?
Not really ... for reasons that Ricardo also made clear
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 11 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Comparative Advantage: The Scientific Legacy
Sets an agenda for theory and empirics
Broadly consistent with trade patterns between countries that differsignificantly
Though proper scientific confirmation took longer
Early empirical studies hampered by theory’s low dimensionality[MacDougall (1951)]
Theory needed to be generalized[Dornbusch, Fischer, and Samuelson (1977), Eaton and Kortum (2002)]
Which has allowed confirmation and quantification[Costinot, Donaldson, and Komunjer (2012)]
What about the legacy for policy?
Universal free trade?
Not really ... for reasons that Ricardo also made clear
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 11 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Comparative Advantage: The Scientific Legacy
Sets an agenda for theory and empirics
Broadly consistent with trade patterns between countries that differsignificantly
Though proper scientific confirmation took longer
Early empirical studies hampered by theory’s low dimensionality[MacDougall (1951)]
Theory needed to be generalized[Dornbusch, Fischer, and Samuelson (1977), Eaton and Kortum (2002)]
Which has allowed confirmation and quantification[Costinot, Donaldson, and Komunjer (2012)]
What about the legacy for policy?
Universal free trade?
Not really ... for reasons that Ricardo also made clear
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 11 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Comparative Advantage: The Scientific Legacy
Sets an agenda for theory and empirics
Broadly consistent with trade patterns between countries that differsignificantly
Though proper scientific confirmation took longer
Early empirical studies hampered by theory’s low dimensionality[MacDougall (1951)]
Theory needed to be generalized[Dornbusch, Fischer, and Samuelson (1977), Eaton and Kortum (2002)]
Which has allowed confirmation and quantification[Costinot, Donaldson, and Komunjer (2012)]
What about the legacy for policy?
Universal free trade?
Not really ... for reasons that Ricardo also made clear
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 11 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Comparative Advantage: The Scientific Legacy
Sets an agenda for theory and empirics
Broadly consistent with trade patterns between countries that differsignificantly
Though proper scientific confirmation took longer
Early empirical studies hampered by theory’s low dimensionality[MacDougall (1951)]
Theory needed to be generalized[Dornbusch, Fischer, and Samuelson (1977), Eaton and Kortum (2002)]
Which has allowed confirmation and quantification[Costinot, Donaldson, and Komunjer (2012)]
What about the legacy for policy?
Universal free trade?
Not really ... for reasons that Ricardo also made clear
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 11 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Comparative Advantage: The Scientific Legacy
Sets an agenda for theory and empirics
Broadly consistent with trade patterns between countries that differsignificantly
Though proper scientific confirmation took longer
Early empirical studies hampered by theory’s low dimensionality[MacDougall (1951)]
Theory needed to be generalized[Dornbusch, Fischer, and Samuelson (1977), Eaton and Kortum (2002)]
Which has allowed confirmation and quantification[Costinot, Donaldson, and Komunjer (2012)]
What about the legacy for policy?
Universal free trade?
Not really ... for reasons that Ricardo also made clear
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 11 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Comparative Advantage: The Scientific Legacy
Sets an agenda for theory and empirics
Broadly consistent with trade patterns between countries that differsignificantly
Though proper scientific confirmation took longer
Early empirical studies hampered by theory’s low dimensionality[MacDougall (1951)]
Theory needed to be generalized[Dornbusch, Fischer, and Samuelson (1977), Eaton and Kortum (2002)]
Which has allowed confirmation and quantification[Costinot, Donaldson, and Komunjer (2012)]
What about the legacy for policy?
Universal free trade?
Not really ... for reasons that Ricardo also made clear
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 11 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Comparative Advantage: The Scientific Legacy
Sets an agenda for theory and empirics
Broadly consistent with trade patterns between countries that differsignificantly
Though proper scientific confirmation took longer
Early empirical studies hampered by theory’s low dimensionality[MacDougall (1951)]
Theory needed to be generalized[Dornbusch, Fischer, and Samuelson (1977), Eaton and Kortum (2002)]
Which has allowed confirmation and quantification[Costinot, Donaldson, and Komunjer (2012)]
What about the legacy for policy?
Universal free trade?
Not really ... for reasons that Ricardo also made clear
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 11 / 29
David Ricardo’s Big Idea: Trade and Comparative Advantage
Comparative Advantage: The Scientific Legacy
Sets an agenda for theory and empirics
Broadly consistent with trade patterns between countries that differsignificantly
Though proper scientific confirmation took longer
Early empirical studies hampered by theory’s low dimensionality[MacDougall (1951)]
Theory needed to be generalized[Dornbusch, Fischer, and Samuelson (1977), Eaton and Kortum (2002)]
Which has allowed confirmation and quantification[Costinot, Donaldson, and Komunjer (2012)]
What about the legacy for policy?
Universal free trade?
Not really ... for reasons that Ricardo also made clear
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 11 / 29
Trade and Income Distribution
Outline
1 The Dawn of Economic Theory
2 David Ricardo’s Big Idea: Trade and Comparative Advantage
3 Trade and Income Distribution
4 What Ricardo Didn’t Know
5 Policy Relevance
6 Conclusion
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 12 / 29
Trade and Income Distribution
Trade and Income Distribution
Ricardo’s analysis of the Corn Laws
Eliminating corn tariffs would harm landowners, help labourers
Net gains, implying that losers could be compensated ...
... though they never are ...
Trade and Income Distribution 1.0
Highlights a central, “common-sensical”, mechanism
An early version of the specific-factors model[Findlay (1974)]
Later work integrated it with the theory of comparative advantage
“Stolper-Samuelson” effect: Trade liberalization by a skill-abundantcountry will harm unskilled workers
Very robust key idea: there is always at least one winner and one loser[Ethier (1974)]
Evidence of both for the U.S.[Autor, Dorn, and Hanson (2013), Feenstra and Sasahara (2017)]
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 13 / 29
Trade and Income Distribution
Trade and Income Distribution
Ricardo’s analysis of the Corn Laws
Eliminating corn tariffs would harm landowners, help labourers
Net gains, implying that losers could be compensated ...
... though they never are ...
Trade and Income Distribution 1.0
Highlights a central, “common-sensical”, mechanism
An early version of the specific-factors model[Findlay (1974)]
Later work integrated it with the theory of comparative advantage
“Stolper-Samuelson” effect: Trade liberalization by a skill-abundantcountry will harm unskilled workers
Very robust key idea: there is always at least one winner and one loser[Ethier (1974)]
Evidence of both for the U.S.[Autor, Dorn, and Hanson (2013), Feenstra and Sasahara (2017)]
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 13 / 29
Trade and Income Distribution
Trade and Income Distribution
Ricardo’s analysis of the Corn Laws
Eliminating corn tariffs would harm landowners, help labourers
Net gains, implying that losers could be compensated ...
... though they never are ...
Trade and Income Distribution 1.0
Highlights a central, “common-sensical”, mechanism
An early version of the specific-factors model[Findlay (1974)]
Later work integrated it with the theory of comparative advantage
“Stolper-Samuelson” effect: Trade liberalization by a skill-abundantcountry will harm unskilled workers
Very robust key idea: there is always at least one winner and one loser[Ethier (1974)]
Evidence of both for the U.S.[Autor, Dorn, and Hanson (2013), Feenstra and Sasahara (2017)]
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 13 / 29
Trade and Income Distribution
Trade and Income Distribution
Ricardo’s analysis of the Corn Laws
Eliminating corn tariffs would harm landowners, help labourers
Net gains, implying that losers could be compensated ...... though they never are ...
Trade and Income Distribution 1.0
Highlights a central, “common-sensical”, mechanism
An early version of the specific-factors model[Findlay (1974)]
Later work integrated it with the theory of comparative advantage
“Stolper-Samuelson” effect: Trade liberalization by a skill-abundantcountry will harm unskilled workers
Very robust key idea: there is always at least one winner and one loser[Ethier (1974)]
Evidence of both for the U.S.[Autor, Dorn, and Hanson (2013), Feenstra and Sasahara (2017)]
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 13 / 29
Trade and Income Distribution
Trade and Income Distribution
Ricardo’s analysis of the Corn Laws
Eliminating corn tariffs would harm landowners, help labourers
Net gains, implying that losers could be compensated ...... though they never are ...
Trade and Income Distribution 1.0
Highlights a central, “common-sensical”, mechanism
An early version of the specific-factors model[Findlay (1974)]
Later work integrated it with the theory of comparative advantage
“Stolper-Samuelson” effect: Trade liberalization by a skill-abundantcountry will harm unskilled workers
Very robust key idea: there is always at least one winner and one loser[Ethier (1974)]
Evidence of both for the U.S.[Autor, Dorn, and Hanson (2013), Feenstra and Sasahara (2017)]
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 13 / 29
Trade and Income Distribution
Trade and Income Distribution
Ricardo’s analysis of the Corn Laws
Eliminating corn tariffs would harm landowners, help labourers
Net gains, implying that losers could be compensated ...... though they never are ...
Trade and Income Distribution 1.0
Highlights a central, “common-sensical”, mechanism
An early version of the specific-factors model[Findlay (1974)]
Later work integrated it with the theory of comparative advantage
“Stolper-Samuelson” effect: Trade liberalization by a skill-abundantcountry will harm unskilled workers
Very robust key idea: there is always at least one winner and one loser[Ethier (1974)]
Evidence of both for the U.S.[Autor, Dorn, and Hanson (2013), Feenstra and Sasahara (2017)]
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 13 / 29
Trade and Income Distribution
Trade and Income Distribution
Ricardo’s analysis of the Corn Laws
Eliminating corn tariffs would harm landowners, help labourers
Net gains, implying that losers could be compensated ...... though they never are ...
Trade and Income Distribution 1.0
Highlights a central, “common-sensical”, mechanism
An early version of the specific-factors model[Findlay (1974)]
Later work integrated it with the theory of comparative advantage
“Stolper-Samuelson” effect: Trade liberalization by a skill-abundantcountry will harm unskilled workers
Very robust key idea: there is always at least one winner and one loser[Ethier (1974)]
Evidence of both for the U.S.[Autor, Dorn, and Hanson (2013), Feenstra and Sasahara (2017)]
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 13 / 29
Trade and Income Distribution
Trade and Income Distribution
Ricardo’s analysis of the Corn Laws
Eliminating corn tariffs would harm landowners, help labourers
Net gains, implying that losers could be compensated ...... though they never are ...
Trade and Income Distribution 1.0
Highlights a central, “common-sensical”, mechanism
An early version of the specific-factors model[Findlay (1974)]
Later work integrated it with the theory of comparative advantage
“Stolper-Samuelson” effect: Trade liberalization by a skill-abundantcountry will harm unskilled workers
Very robust key idea: there is always at least one winner and one loser[Ethier (1974)]
Evidence of both for the U.S.[Autor, Dorn, and Hanson (2013), Feenstra and Sasahara (2017)]
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 13 / 29
Trade and Income Distribution
Trade and Income Distribution
Ricardo’s analysis of the Corn Laws
Eliminating corn tariffs would harm landowners, help labourers
Net gains, implying that losers could be compensated ...... though they never are ...
Trade and Income Distribution 1.0
Highlights a central, “common-sensical”, mechanism
An early version of the specific-factors model[Findlay (1974)]
Later work integrated it with the theory of comparative advantage
“Stolper-Samuelson” effect: Trade liberalization by a skill-abundantcountry will harm unskilled workers
Very robust key idea: there is always at least one winner and one loser[Ethier (1974)]
Evidence of both for the U.S.[Autor, Dorn, and Hanson (2013), Feenstra and Sasahara (2017)]
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 13 / 29
Trade and Income Distribution
Trade and Income Distribution
Ricardo’s analysis of the Corn Laws
Eliminating corn tariffs would harm landowners, help labourers
Net gains, implying that losers could be compensated ...... though they never are ...
Trade and Income Distribution 1.0
Highlights a central, “common-sensical”, mechanism
An early version of the specific-factors model[Findlay (1974)]
Later work integrated it with the theory of comparative advantage
“Stolper-Samuelson” effect: Trade liberalization by a skill-abundantcountry will harm unskilled workers
Very robust key idea: there is always at least one winner and one loser[Ethier (1974)]
Evidence of both for the U.S.[Autor, Dorn, and Hanson (2013), Feenstra and Sasahara (2017)]
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 13 / 29
Trade and Income Distribution
Trade and Income Distribution
Ricardo’s analysis of the Corn Laws
Eliminating corn tariffs would harm landowners, help labourers
Net gains, implying that losers could be compensated ...... though they never are ...
Trade and Income Distribution 1.0
Highlights a central, “common-sensical”, mechanism
An early version of the specific-factors model[Findlay (1974)]
Later work integrated it with the theory of comparative advantage
“Stolper-Samuelson” effect: Trade liberalization by a skill-abundantcountry will harm unskilled workers
Very robust key idea: there is always at least one winner and one loser[Ethier (1974)]
Evidence of both for the U.S.[Autor, Dorn, and Hanson (2013), Feenstra and Sasahara (2017)]
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 13 / 29
What Ricardo Didn’t Know
Outline
1 The Dawn of Economic Theory
2 David Ricardo’s Big Idea: Trade and Comparative Advantage
3 Trade and Income Distribution
4 What Ricardo Didn’t Know
5 Policy Relevance
6 Conclusion
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 14 / 29
What Ricardo Didn’t Know
Of Course, We Have Learnt a Lot Since Ricardo
1 Gravity
2 Intra-Industry Trade
3 Trade in Intermediate Goods
4 Firms in Trade
5 Big Data, Quantification, etc.
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 15 / 29
What Ricardo Didn’t Know
Of Course, We Have Learnt a Lot Since Ricardo
1 Gravity
2 Intra-Industry Trade
3 Trade in Intermediate Goods
4 Firms in Trade
5 Big Data, Quantification, etc.
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 15 / 29
What Ricardo Didn’t Know
Gravity or Anti-Gravity?
Mr. Gravity Mr. Anti-Gravity
Mr. Gravity [Jim Anderson]: Vjk =(
τjkΠjPk
)1−σIjIk
IW
Mr. Anti-Gravity [Liam Fox, UK Minister for International Trade]:
“Today, we stand on the verge of an unprecedented ability to liberate global tradefor the benefit of our whole planet with technological advances dissolving away thebarriers of time and distance. It is potentially the beginning of what I might call‘post geography trading world’ where we are much less restricted in having to findpartners who are physically close to us.”
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 16 / 29
What Ricardo Didn’t Know
Gravity or Anti-Gravity?
Mr. Gravity
Mr. Anti-Gravity
Mr. Gravity [Jim Anderson]: Vjk =(
τjkΠjPk
)1−σIjIk
IW
Mr. Anti-Gravity [Liam Fox, UK Minister for International Trade]:
“Today, we stand on the verge of an unprecedented ability to liberate global tradefor the benefit of our whole planet with technological advances dissolving away thebarriers of time and distance. It is potentially the beginning of what I might call‘post geography trading world’ where we are much less restricted in having to findpartners who are physically close to us.”
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 16 / 29
What Ricardo Didn’t Know
Gravity or Anti-Gravity?
Mr. Gravity Mr. Anti-Gravity
Mr. Gravity [Jim Anderson]: Vjk =(
τjkΠjPk
)1−σIjIk
IW
Mr. Anti-Gravity [Liam Fox, UK Minister for International Trade]:
“Today, we stand on the verge of an unprecedented ability to liberate global tradefor the benefit of our whole planet with technological advances dissolving away thebarriers of time and distance. It is potentially the beginning of what I might call‘post geography trading world’ where we are much less restricted in having to findpartners who are physically close to us.”
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 16 / 29
What Ricardo Didn’t Know
Gravity or Anti-Gravity?
Mr. Gravity Mr. Anti-Gravity
Mr. Gravity [Jim Anderson]: Vjk =(
τjkΠjPk
)1−σIjIk
IW
Mr. Anti-Gravity [Liam Fox, UK Minister for International Trade]:
“Today, we stand on the verge of an unprecedented ability to liberate global tradefor the benefit of our whole planet with technological advances dissolving away thebarriers of time and distance. It is potentially the beginning of what I might call‘post geography trading world’ where we are much less restricted in having to findpartners who are physically close to us.”
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 16 / 29
What Ricardo Didn’t Know
Gravity or Anti-Gravity?
Mr. Gravity Mr. Anti-Gravity
Mr. Gravity [Jim Anderson]: Vjk =(
τjkΠjPk
)1−σIjIk
IW
Mr. Anti-Gravity [Liam Fox, UK Minister for International Trade]:
“Today, we stand on the verge of an unprecedented ability to liberate global tradefor the benefit of our whole planet with technological advances dissolving away thebarriers of time and distance. It is potentially the beginning of what I might call‘post geography trading world’ where we are much less restricted in having to findpartners who are physically close to us.”
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 16 / 29
What Ricardo Didn’t Know
Gravity or Anti-Gravity?
Mr. Gravity Mr. Anti-Gravity
Mr. Gravity [Jim Anderson]: Vjk =(
τjkΠjPk
)1−σIjIk
IW
Mr. Anti-Gravity [Liam Fox, UK Minister for International Trade]:
“Today, we stand on the verge of an unprecedented ability to liberate global tradefor the benefit of our whole planet with technological advances dissolving away thebarriers of time and distance. It is potentially the beginning of what I might call‘post geography trading world’ where we are much less restricted in having to findpartners who are physically close to us.”
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 16 / 29
What Ricardo Didn’t Know
Anti-Gravity: Not Stupid ...
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 17 / 29
What Ricardo Didn’t Know
Anti-Gravity: Not Stupid ... Just Wrong
Has the World Become Flat?
No: Overwhelming evidence that trade declines with distance
Average preferred estimate: −1.1[Head and Mayer (2014): review of 159 papers; S.D. 0.41; median −1.14]
No evidence that the effect is declining
Despite the internet, etc.: How come?Conjecture that this reduces the effect of distance uniformly
Distance even matters (though less so) for:
FDI: Keller and Yeaple (2013)Equities: Portes and Rey (2005)eBay: Lendle, Olarreaga, Schropp, and Vezina (2016)Google: Cowgill and Dorobantu (2012)
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 18 / 29
What Ricardo Didn’t Know
Anti-Gravity: Not Stupid ... Just Wrong
Has the World Become Flat?No: Overwhelming evidence that trade declines with distance
Average preferred estimate: −1.1[Head and Mayer (2014): review of 159 papers; S.D. 0.41; median −1.14]
No evidence that the effect is declining
Despite the internet, etc.: How come?Conjecture that this reduces the effect of distance uniformly
Distance even matters (though less so) for:
FDI: Keller and Yeaple (2013)Equities: Portes and Rey (2005)eBay: Lendle, Olarreaga, Schropp, and Vezina (2016)Google: Cowgill and Dorobantu (2012)
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 18 / 29
What Ricardo Didn’t Know
Anti-Gravity: Not Stupid ... Just Wrong
Has the World Become Flat?No: Overwhelming evidence that trade declines with distance
Average preferred estimate: −1.1[Head and Mayer (2014): review of 159 papers; S.D. 0.41; median −1.14]
No evidence that the effect is declining
Despite the internet, etc.: How come?Conjecture that this reduces the effect of distance uniformly
Distance even matters (though less so) for:
FDI: Keller and Yeaple (2013)Equities: Portes and Rey (2005)eBay: Lendle, Olarreaga, Schropp, and Vezina (2016)Google: Cowgill and Dorobantu (2012)
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 18 / 29
What Ricardo Didn’t Know
Anti-Gravity: Not Stupid ... Just Wrong
Has the World Become Flat?No: Overwhelming evidence that trade declines with distance
Average preferred estimate: −1.1[Head and Mayer (2014): review of 159 papers; S.D. 0.41; median −1.14]
No evidence that the effect is declining
Despite the internet, etc.: How come?Conjecture that this reduces the effect of distance uniformly
Distance even matters (though less so) for:
FDI: Keller and Yeaple (2013)Equities: Portes and Rey (2005)eBay: Lendle, Olarreaga, Schropp, and Vezina (2016)Google: Cowgill and Dorobantu (2012)
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 18 / 29
What Ricardo Didn’t Know
Anti-Gravity: Not Stupid ... Just Wrong
Has the World Become Flat?No: Overwhelming evidence that trade declines with distance
Average preferred estimate: −1.1[Head and Mayer (2014): review of 159 papers; S.D. 0.41; median −1.14]
No evidence that the effect is declining
Despite the internet, etc.: How come?
Conjecture that this reduces the effect of distance uniformly
Distance even matters (though less so) for:
FDI: Keller and Yeaple (2013)Equities: Portes and Rey (2005)eBay: Lendle, Olarreaga, Schropp, and Vezina (2016)Google: Cowgill and Dorobantu (2012)
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 18 / 29
What Ricardo Didn’t Know
Anti-Gravity: Not Stupid ... Just Wrong
Has the World Become Flat?No: Overwhelming evidence that trade declines with distance
Average preferred estimate: −1.1[Head and Mayer (2014): review of 159 papers; S.D. 0.41; median −1.14]
No evidence that the effect is declining
Despite the internet, etc.: How come?Conjecture that this reduces the effect of distance uniformly
Distance even matters (though less so) for:
FDI: Keller and Yeaple (2013)Equities: Portes and Rey (2005)eBay: Lendle, Olarreaga, Schropp, and Vezina (2016)Google: Cowgill and Dorobantu (2012)
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 18 / 29
What Ricardo Didn’t Know
Anti-Gravity: Not Stupid ... Just Wrong
Has the World Become Flat?No: Overwhelming evidence that trade declines with distance
Average preferred estimate: −1.1[Head and Mayer (2014): review of 159 papers; S.D. 0.41; median −1.14]
No evidence that the effect is declining
Despite the internet, etc.: How come?Conjecture that this reduces the effect of distance uniformly
Distance even matters (though less so) for:
FDI: Keller and Yeaple (2013)Equities: Portes and Rey (2005)eBay: Lendle, Olarreaga, Schropp, and Vezina (2016)Google: Cowgill and Dorobantu (2012)
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 18 / 29
What Ricardo Didn’t Know
Anti-Gravity: Not Stupid ... Just Wrong
Has the World Become Flat?No: Overwhelming evidence that trade declines with distance
Average preferred estimate: −1.1[Head and Mayer (2014): review of 159 papers; S.D. 0.41; median −1.14]
No evidence that the effect is declining
Despite the internet, etc.: How come?Conjecture that this reduces the effect of distance uniformly
Distance even matters (though less so) for:
FDI: Keller and Yeaple (2013)
Equities: Portes and Rey (2005)eBay: Lendle, Olarreaga, Schropp, and Vezina (2016)Google: Cowgill and Dorobantu (2012)
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 18 / 29
What Ricardo Didn’t Know
Anti-Gravity: Not Stupid ... Just Wrong
Has the World Become Flat?No: Overwhelming evidence that trade declines with distance
Average preferred estimate: −1.1[Head and Mayer (2014): review of 159 papers; S.D. 0.41; median −1.14]
No evidence that the effect is declining
Despite the internet, etc.: How come?Conjecture that this reduces the effect of distance uniformly
Distance even matters (though less so) for:
FDI: Keller and Yeaple (2013)Equities: Portes and Rey (2005)
eBay: Lendle, Olarreaga, Schropp, and Vezina (2016)Google: Cowgill and Dorobantu (2012)
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 18 / 29
What Ricardo Didn’t Know
Anti-Gravity: Not Stupid ... Just Wrong
Has the World Become Flat?No: Overwhelming evidence that trade declines with distance
Average preferred estimate: −1.1[Head and Mayer (2014): review of 159 papers; S.D. 0.41; median −1.14]
No evidence that the effect is declining
Despite the internet, etc.: How come?Conjecture that this reduces the effect of distance uniformly
Distance even matters (though less so) for:
FDI: Keller and Yeaple (2013)Equities: Portes and Rey (2005)eBay: Lendle, Olarreaga, Schropp, and Vezina (2016)
Google: Cowgill and Dorobantu (2012)
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 18 / 29
What Ricardo Didn’t Know
Anti-Gravity: Not Stupid ... Just Wrong
Has the World Become Flat?No: Overwhelming evidence that trade declines with distance
Average preferred estimate: −1.1[Head and Mayer (2014): review of 159 papers; S.D. 0.41; median −1.14]
No evidence that the effect is declining
Despite the internet, etc.: How come?Conjecture that this reduces the effect of distance uniformly
Distance even matters (though less so) for:
FDI: Keller and Yeaple (2013)Equities: Portes and Rey (2005)eBay: Lendle, Olarreaga, Schropp, and Vezina (2016)Google: Cowgill and Dorobantu (2012)
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 18 / 29
What Ricardo Didn’t Know
Other Things We Have Learnt
2 Intra-Industry Trade
Driven by product differentiation and increasing returns
Dominates trade between similar economies
Implies gains from increased variety
Lower costs of adjustment than inter-industry trade [Krugman (1981)]
3 Trade in Intermediate Goods
“The division of labour limited by the extent of the market”
Global and mega-regional value chains
4 Firms in Trade
Heterogeneous: Minnows and superstars
Intra-firm margins of adjustment: Multi-product, multi-destination
Globalization typically implies a ”Matthew Effect”[Mrazova and Neary (2017)]
Strategic behaviour: Superstar firms are different
5 Big Data, Quantification, etc.
The scientific study of international trade
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 19 / 29
What Ricardo Didn’t Know
Other Things We Have Learnt
2 Intra-Industry Trade
Driven by product differentiation and increasing returns
Dominates trade between similar economies
Implies gains from increased variety
Lower costs of adjustment than inter-industry trade [Krugman (1981)]
3 Trade in Intermediate Goods
“The division of labour limited by the extent of the market”
Global and mega-regional value chains
4 Firms in Trade
Heterogeneous: Minnows and superstars
Intra-firm margins of adjustment: Multi-product, multi-destination
Globalization typically implies a ”Matthew Effect”[Mrazova and Neary (2017)]
Strategic behaviour: Superstar firms are different
5 Big Data, Quantification, etc.
The scientific study of international trade
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 19 / 29
What Ricardo Didn’t Know
Other Things We Have Learnt
2 Intra-Industry Trade
Driven by product differentiation and increasing returns
Dominates trade between similar economies
Implies gains from increased variety
Lower costs of adjustment than inter-industry trade [Krugman (1981)]
3 Trade in Intermediate Goods
“The division of labour limited by the extent of the market”
Global and mega-regional value chains
4 Firms in Trade
Heterogeneous: Minnows and superstars
Intra-firm margins of adjustment: Multi-product, multi-destination
Globalization typically implies a ”Matthew Effect”[Mrazova and Neary (2017)]
Strategic behaviour: Superstar firms are different
5 Big Data, Quantification, etc.
The scientific study of international trade
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 19 / 29
What Ricardo Didn’t Know
Other Things We Have Learnt
2 Intra-Industry Trade
Driven by product differentiation and increasing returns
Dominates trade between similar economies
Implies gains from increased variety
Lower costs of adjustment than inter-industry trade [Krugman (1981)]
3 Trade in Intermediate Goods
“The division of labour limited by the extent of the market”
Global and mega-regional value chains
4 Firms in Trade
Heterogeneous: Minnows and superstars
Intra-firm margins of adjustment: Multi-product, multi-destination
Globalization typically implies a ”Matthew Effect”[Mrazova and Neary (2017)]
Strategic behaviour: Superstar firms are different
5 Big Data, Quantification, etc.
The scientific study of international trade
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 19 / 29
What Ricardo Didn’t Know
Other Things We Have Learnt
2 Intra-Industry Trade
Driven by product differentiation and increasing returns
Dominates trade between similar economies
Implies gains from increased variety
Lower costs of adjustment than inter-industry trade [Krugman (1981)]
3 Trade in Intermediate Goods
“The division of labour limited by the extent of the market”
Global and mega-regional value chains
4 Firms in Trade
Heterogeneous: Minnows and superstars
Intra-firm margins of adjustment: Multi-product, multi-destination
Globalization typically implies a ”Matthew Effect”[Mrazova and Neary (2017)]
Strategic behaviour: Superstar firms are different
5 Big Data, Quantification, etc.
The scientific study of international trade
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 19 / 29
What Ricardo Didn’t Know
Other Things We Have Learnt
2 Intra-Industry Trade
Driven by product differentiation and increasing returns
Dominates trade between similar economies
Implies gains from increased variety
Lower costs of adjustment than inter-industry trade [Krugman (1981)]
3 Trade in Intermediate Goods
“The division of labour limited by the extent of the market”
Global and mega-regional value chains4 Firms in Trade
Heterogeneous: Minnows and superstars
Intra-firm margins of adjustment: Multi-product, multi-destination
Globalization typically implies a ”Matthew Effect”[Mrazova and Neary (2017)]
Strategic behaviour: Superstar firms are different
5 Big Data, Quantification, etc.
The scientific study of international trade
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 19 / 29
What Ricardo Didn’t Know
Other Things We Have Learnt
2 Intra-Industry Trade
Driven by product differentiation and increasing returns
Dominates trade between similar economies
Implies gains from increased variety
Lower costs of adjustment than inter-industry trade [Krugman (1981)]
3 Trade in Intermediate Goods
“The division of labour limited by the extent of the market”
Global and mega-regional value chains
4 Firms in Trade
Heterogeneous: Minnows and superstars
Intra-firm margins of adjustment: Multi-product, multi-destination
Globalization typically implies a ”Matthew Effect”[Mrazova and Neary (2017)]
Strategic behaviour: Superstar firms are different
5 Big Data, Quantification, etc.
The scientific study of international trade
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 19 / 29
What Ricardo Didn’t Know
Other Things We Have Learnt
2 Intra-Industry Trade
Driven by product differentiation and increasing returns
Dominates trade between similar economies
Implies gains from increased variety
Lower costs of adjustment than inter-industry trade [Krugman (1981)]
3 Trade in Intermediate Goods
“The division of labour limited by the extent of the market”
Global and mega-regional value chains
4 Firms in Trade
Heterogeneous: Minnows and superstars
Intra-firm margins of adjustment: Multi-product, multi-destination
Globalization typically implies a ”Matthew Effect”[Mrazova and Neary (2017)]
Strategic behaviour: Superstar firms are different
5 Big Data, Quantification, etc.
The scientific study of international trade
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 19 / 29
What Ricardo Didn’t Know
Other Things We Have Learnt
2 Intra-Industry Trade
Driven by product differentiation and increasing returns
Dominates trade between similar economies
Implies gains from increased variety
Lower costs of adjustment than inter-industry trade [Krugman (1981)]
3 Trade in Intermediate Goods
“The division of labour limited by the extent of the market”
Global and mega-regional value chains4 Firms in Trade
Heterogeneous: Minnows and superstars
Intra-firm margins of adjustment: Multi-product, multi-destination
Globalization typically implies a ”Matthew Effect”[Mrazova and Neary (2017)]
Strategic behaviour: Superstar firms are different5 Big Data, Quantification, etc.
The scientific study of international trade
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 19 / 29
What Ricardo Didn’t Know
Other Things We Have Learnt
2 Intra-Industry Trade
Driven by product differentiation and increasing returns
Dominates trade between similar economies
Implies gains from increased variety
Lower costs of adjustment than inter-industry trade [Krugman (1981)]
3 Trade in Intermediate Goods
“The division of labour limited by the extent of the market”
Global and mega-regional value chains4 Firms in Trade
Heterogeneous: Minnows and superstars
Intra-firm margins of adjustment: Multi-product, multi-destination
Globalization typically implies a ”Matthew Effect”[Mrazova and Neary (2017)]
Strategic behaviour: Superstar firms are different5 Big Data, Quantification, etc.
The scientific study of international trade
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 19 / 29
What Ricardo Didn’t Know
Other Things We Have Learnt
2 Intra-Industry Trade
Driven by product differentiation and increasing returns
Dominates trade between similar economies
Implies gains from increased variety
Lower costs of adjustment than inter-industry trade [Krugman (1981)]
3 Trade in Intermediate Goods
“The division of labour limited by the extent of the market”
Global and mega-regional value chains4 Firms in Trade
Heterogeneous: Minnows and superstars
Intra-firm margins of adjustment: Multi-product, multi-destination
Globalization typically implies a ”Matthew Effect”[Mrazova and Neary (2017)]
Strategic behaviour: Superstar firms are different5 Big Data, Quantification, etc.
The scientific study of international trade
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 19 / 29
What Ricardo Didn’t Know
Other Things We Have Learnt
2 Intra-Industry Trade
Driven by product differentiation and increasing returns
Dominates trade between similar economies
Implies gains from increased variety
Lower costs of adjustment than inter-industry trade [Krugman (1981)]
3 Trade in Intermediate Goods
“The division of labour limited by the extent of the market”
Global and mega-regional value chains4 Firms in Trade
Heterogeneous: Minnows and superstars
Intra-firm margins of adjustment: Multi-product, multi-destination
Globalization typically implies a ”Matthew Effect”[Mrazova and Neary (2017)]
Strategic behaviour: Superstar firms are different
5 Big Data, Quantification, etc.
The scientific study of international trade
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 19 / 29
What Ricardo Didn’t Know
Other Things We Have Learnt
2 Intra-Industry Trade
Driven by product differentiation and increasing returns
Dominates trade between similar economies
Implies gains from increased variety
Lower costs of adjustment than inter-industry trade [Krugman (1981)]
3 Trade in Intermediate Goods
“The division of labour limited by the extent of the market”
Global and mega-regional value chains4 Firms in Trade
Heterogeneous: Minnows and superstars
Intra-firm margins of adjustment: Multi-product, multi-destination
Globalization typically implies a ”Matthew Effect”[Mrazova and Neary (2017)]
Strategic behaviour: Superstar firms are different
5 Big Data, Quantification, etc.
The scientific study of international trade
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 19 / 29
What Ricardo Didn’t Know
Other Things We Have Learnt
2 Intra-Industry Trade
Driven by product differentiation and increasing returns
Dominates trade between similar economies
Implies gains from increased variety
Lower costs of adjustment than inter-industry trade [Krugman (1981)]
3 Trade in Intermediate Goods
“The division of labour limited by the extent of the market”
Global and mega-regional value chains4 Firms in Trade
Heterogeneous: Minnows and superstars
Intra-firm margins of adjustment: Multi-product, multi-destination
Globalization typically implies a ”Matthew Effect”[Mrazova and Neary (2017)]
Strategic behaviour: Superstar firms are different5 Big Data, Quantification, etc.
The scientific study of international tradeJ.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 19 / 29
Policy Relevance
Outline
1 The Dawn of Economic Theory
2 David Ricardo’s Big Idea: Trade and Comparative Advantage
3 Trade and Income Distribution
4 What Ricardo Didn’t Know
5 Policy Relevance
6 Conclusion
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 20 / 29
Policy Relevance
What are These People Doing?
A Special Relationship Shared Values
Discussing Trade Agreements of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 21 / 29
Policy Relevance
What are These People Doing?
A Special Relationship
Shared Values
Discussing Trade Agreements of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 21 / 29
Policy Relevance
What are These People Doing?
A Special Relationship Shared Values
Discussing Trade Agreements of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 21 / 29
Policy Relevance
What are These People Doing?
A Special Relationship Shared Values
Discussing Trade Agreements of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 21 / 29
Policy Relevance
Brexit: Science versus Politics, Ideology, Outrage
Trade agreements are fundamentally political/non-economic
This is a deeper kind of “political” from trade models:
Trade agreements as a way to internalise terms-of-trade externality[Bagwell and Staiger (1999)]
Trade agreements as a commitment device to restrict producer interests[Maggi and Rodrıguez-Clare (1998), Maggi, Mrazova, and Neary (2017)]
Like any international treaty, they imply some loss of sovereignty
As economists we have no right to condemn non-economic views
Brexit is more about identity, history, belonging, than economicsSurveys suggest that many (not all) Brexit voters are willing to pay
As citizens, we have every right, but ...
We should not claim too much
Project Fear? Brexit will be less Dunkirk, more Winter of Discontent
We should not abuse our position
We should declare our interests
Speaking as a citizen ...... of Ireland, Europe, and the World
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 22 / 29
Policy Relevance
Brexit: Science versus Politics, Ideology, Outrage
Trade agreements are fundamentally political/non-economic
This is a deeper kind of “political” from trade models:
Trade agreements as a way to internalise terms-of-trade externality[Bagwell and Staiger (1999)]
Trade agreements as a commitment device to restrict producer interests[Maggi and Rodrıguez-Clare (1998), Maggi, Mrazova, and Neary (2017)]
Like any international treaty, they imply some loss of sovereignty
As economists we have no right to condemn non-economic views
Brexit is more about identity, history, belonging, than economicsSurveys suggest that many (not all) Brexit voters are willing to pay
As citizens, we have every right, but ...
We should not claim too much
Project Fear? Brexit will be less Dunkirk, more Winter of Discontent
We should not abuse our position
We should declare our interests
Speaking as a citizen ...... of Ireland, Europe, and the World
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 22 / 29
Policy Relevance
Brexit: Science versus Politics, Ideology, Outrage
Trade agreements are fundamentally political/non-economicThis is a deeper kind of “political” from trade models:
Trade agreements as a way to internalise terms-of-trade externality[Bagwell and Staiger (1999)]
Trade agreements as a commitment device to restrict producer interests[Maggi and Rodrıguez-Clare (1998), Maggi, Mrazova, and Neary (2017)]
Like any international treaty, they imply some loss of sovereignty
As economists we have no right to condemn non-economic views
Brexit is more about identity, history, belonging, than economicsSurveys suggest that many (not all) Brexit voters are willing to pay
As citizens, we have every right, but ...
We should not claim too much
Project Fear? Brexit will be less Dunkirk, more Winter of Discontent
We should not abuse our position
We should declare our interests
Speaking as a citizen ...... of Ireland, Europe, and the World
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 22 / 29
Policy Relevance
Brexit: Science versus Politics, Ideology, Outrage
Trade agreements are fundamentally political/non-economicThis is a deeper kind of “political” from trade models:
Trade agreements as a way to internalise terms-of-trade externality[Bagwell and Staiger (1999)]
Trade agreements as a commitment device to restrict producer interests[Maggi and Rodrıguez-Clare (1998), Maggi, Mrazova, and Neary (2017)]
Like any international treaty, they imply some loss of sovereignty
As economists we have no right to condemn non-economic views
Brexit is more about identity, history, belonging, than economicsSurveys suggest that many (not all) Brexit voters are willing to pay
As citizens, we have every right, but ...
We should not claim too much
Project Fear? Brexit will be less Dunkirk, more Winter of Discontent
We should not abuse our position
We should declare our interests
Speaking as a citizen ...... of Ireland, Europe, and the World
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 22 / 29
Policy Relevance
Brexit: Science versus Politics, Ideology, Outrage
Trade agreements are fundamentally political/non-economicThis is a deeper kind of “political” from trade models:
Trade agreements as a way to internalise terms-of-trade externality[Bagwell and Staiger (1999)]
Trade agreements as a commitment device to restrict producer interests[Maggi and Rodrıguez-Clare (1998), Maggi, Mrazova, and Neary (2017)]
Like any international treaty, they imply some loss of sovereignty
As economists we have no right to condemn non-economic views
Brexit is more about identity, history, belonging, than economicsSurveys suggest that many (not all) Brexit voters are willing to pay
As citizens, we have every right, but ...
We should not claim too much
Project Fear? Brexit will be less Dunkirk, more Winter of Discontent
We should not abuse our position
We should declare our interests
Speaking as a citizen ...... of Ireland, Europe, and the World
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 22 / 29
Policy Relevance
Brexit: Science versus Politics, Ideology, Outrage
Trade agreements are fundamentally political/non-economicThis is a deeper kind of “political” from trade models:
Trade agreements as a way to internalise terms-of-trade externality[Bagwell and Staiger (1999)]
Trade agreements as a commitment device to restrict producer interests[Maggi and Rodrıguez-Clare (1998), Maggi, Mrazova, and Neary (2017)]
Like any international treaty, they imply some loss of sovereignty
As economists we have no right to condemn non-economic views
Brexit is more about identity, history, belonging, than economicsSurveys suggest that many (not all) Brexit voters are willing to pay
As citizens, we have every right, but ...
We should not claim too much
Project Fear? Brexit will be less Dunkirk, more Winter of Discontent
We should not abuse our position
We should declare our interests
Speaking as a citizen ...... of Ireland, Europe, and the World
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 22 / 29
Policy Relevance
Brexit: Science versus Politics, Ideology, Outrage
Trade agreements are fundamentally political/non-economicThis is a deeper kind of “political” from trade models:
Trade agreements as a way to internalise terms-of-trade externality[Bagwell and Staiger (1999)]
Trade agreements as a commitment device to restrict producer interests[Maggi and Rodrıguez-Clare (1998), Maggi, Mrazova, and Neary (2017)]
Like any international treaty, they imply some loss of sovereignty
As economists we have no right to condemn non-economic views
Brexit is more about identity, history, belonging, than economicsSurveys suggest that many (not all) Brexit voters are willing to pay
As citizens, we have every right, but ...
We should not claim too much
Project Fear? Brexit will be less Dunkirk, more Winter of Discontent
We should not abuse our position
We should declare our interests
Speaking as a citizen ...... of Ireland, Europe, and the World
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 22 / 29
Policy Relevance
Brexit: Science versus Politics, Ideology, Outrage
Trade agreements are fundamentally political/non-economicThis is a deeper kind of “political” from trade models:
Trade agreements as a way to internalise terms-of-trade externality[Bagwell and Staiger (1999)]
Trade agreements as a commitment device to restrict producer interests[Maggi and Rodrıguez-Clare (1998), Maggi, Mrazova, and Neary (2017)]
Like any international treaty, they imply some loss of sovereignty
As economists we have no right to condemn non-economic viewsBrexit is more about identity, history, belonging, than economics
Surveys suggest that many (not all) Brexit voters are willing to pay
As citizens, we have every right, but ...
We should not claim too much
Project Fear? Brexit will be less Dunkirk, more Winter of Discontent
We should not abuse our position
We should declare our interests
Speaking as a citizen ...... of Ireland, Europe, and the World
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 22 / 29
Policy Relevance
Brexit: Science versus Politics, Ideology, Outrage
Trade agreements are fundamentally political/non-economicThis is a deeper kind of “political” from trade models:
Trade agreements as a way to internalise terms-of-trade externality[Bagwell and Staiger (1999)]
Trade agreements as a commitment device to restrict producer interests[Maggi and Rodrıguez-Clare (1998), Maggi, Mrazova, and Neary (2017)]
Like any international treaty, they imply some loss of sovereignty
As economists we have no right to condemn non-economic viewsBrexit is more about identity, history, belonging, than economicsSurveys suggest that many (not all) Brexit voters are willing to pay
As citizens, we have every right, but ...
We should not claim too much
Project Fear? Brexit will be less Dunkirk, more Winter of Discontent
We should not abuse our position
We should declare our interests
Speaking as a citizen ...... of Ireland, Europe, and the World
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 22 / 29
Policy Relevance
Brexit: Science versus Politics, Ideology, Outrage
Trade agreements are fundamentally political/non-economicThis is a deeper kind of “political” from trade models:
Trade agreements as a way to internalise terms-of-trade externality[Bagwell and Staiger (1999)]
Trade agreements as a commitment device to restrict producer interests[Maggi and Rodrıguez-Clare (1998), Maggi, Mrazova, and Neary (2017)]
Like any international treaty, they imply some loss of sovereignty
As economists we have no right to condemn non-economic viewsBrexit is more about identity, history, belonging, than economicsSurveys suggest that many (not all) Brexit voters are willing to pay
As citizens, we have every right, but ...
We should not claim too much
Project Fear? Brexit will be less Dunkirk, more Winter of Discontent
We should not abuse our position
We should declare our interests
Speaking as a citizen ...... of Ireland, Europe, and the World
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 22 / 29
Policy Relevance
Brexit: Science versus Politics, Ideology, Outrage
Trade agreements are fundamentally political/non-economicThis is a deeper kind of “political” from trade models:
Trade agreements as a way to internalise terms-of-trade externality[Bagwell and Staiger (1999)]
Trade agreements as a commitment device to restrict producer interests[Maggi and Rodrıguez-Clare (1998), Maggi, Mrazova, and Neary (2017)]
Like any international treaty, they imply some loss of sovereignty
As economists we have no right to condemn non-economic viewsBrexit is more about identity, history, belonging, than economicsSurveys suggest that many (not all) Brexit voters are willing to pay
As citizens, we have every right, but ...We should not claim too much
Project Fear? Brexit will be less Dunkirk, more Winter of Discontent
We should not abuse our position
We should declare our interests
Speaking as a citizen ...... of Ireland, Europe, and the World
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 22 / 29
Policy Relevance
Brexit: Science versus Politics, Ideology, Outrage
Trade agreements are fundamentally political/non-economicThis is a deeper kind of “political” from trade models:
Trade agreements as a way to internalise terms-of-trade externality[Bagwell and Staiger (1999)]
Trade agreements as a commitment device to restrict producer interests[Maggi and Rodrıguez-Clare (1998), Maggi, Mrazova, and Neary (2017)]
Like any international treaty, they imply some loss of sovereignty
As economists we have no right to condemn non-economic viewsBrexit is more about identity, history, belonging, than economicsSurveys suggest that many (not all) Brexit voters are willing to pay
As citizens, we have every right, but ...We should not claim too much
Project Fear? Brexit will be less Dunkirk, more Winter of Discontent
We should not abuse our position
We should declare our interests
Speaking as a citizen ...... of Ireland, Europe, and the World
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 22 / 29
Policy Relevance
Brexit: Science versus Politics, Ideology, Outrage
Trade agreements are fundamentally political/non-economicThis is a deeper kind of “political” from trade models:
Trade agreements as a way to internalise terms-of-trade externality[Bagwell and Staiger (1999)]
Trade agreements as a commitment device to restrict producer interests[Maggi and Rodrıguez-Clare (1998), Maggi, Mrazova, and Neary (2017)]
Like any international treaty, they imply some loss of sovereignty
As economists we have no right to condemn non-economic viewsBrexit is more about identity, history, belonging, than economicsSurveys suggest that many (not all) Brexit voters are willing to pay
As citizens, we have every right, but ...We should not claim too much
Project Fear? Brexit will be less Dunkirk, more Winter of Discontent
We should not abuse our position
We should declare our interests
Speaking as a citizen ...... of Ireland, Europe, and the World
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 22 / 29
Policy Relevance
Brexit: Science versus Politics, Ideology, Outrage
Trade agreements are fundamentally political/non-economicThis is a deeper kind of “political” from trade models:
Trade agreements as a way to internalise terms-of-trade externality[Bagwell and Staiger (1999)]
Trade agreements as a commitment device to restrict producer interests[Maggi and Rodrıguez-Clare (1998), Maggi, Mrazova, and Neary (2017)]
Like any international treaty, they imply some loss of sovereignty
As economists we have no right to condemn non-economic viewsBrexit is more about identity, history, belonging, than economicsSurveys suggest that many (not all) Brexit voters are willing to pay
As citizens, we have every right, but ...We should not claim too much
Project Fear? Brexit will be less Dunkirk, more Winter of Discontent
We should not abuse our position
We should declare our interests
Speaking as a citizen ...... of Ireland, Europe, and the World
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 22 / 29
Policy Relevance
Brexit: Science versus Politics, Ideology, Outrage
Trade agreements are fundamentally political/non-economicThis is a deeper kind of “political” from trade models:
Trade agreements as a way to internalise terms-of-trade externality[Bagwell and Staiger (1999)]
Trade agreements as a commitment device to restrict producer interests[Maggi and Rodrıguez-Clare (1998), Maggi, Mrazova, and Neary (2017)]
Like any international treaty, they imply some loss of sovereignty
As economists we have no right to condemn non-economic viewsBrexit is more about identity, history, belonging, than economicsSurveys suggest that many (not all) Brexit voters are willing to pay
As citizens, we have every right, but ...We should not claim too much
Project Fear? Brexit will be less Dunkirk, more Winter of Discontent
We should not abuse our position
We should declare our interestsSpeaking as a citizen ...
... of Ireland, Europe, and the World
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 22 / 29
Policy Relevance
Brexit: Science versus Politics, Ideology, Outrage
Trade agreements are fundamentally political/non-economicThis is a deeper kind of “political” from trade models:
Trade agreements as a way to internalise terms-of-trade externality[Bagwell and Staiger (1999)]
Trade agreements as a commitment device to restrict producer interests[Maggi and Rodrıguez-Clare (1998), Maggi, Mrazova, and Neary (2017)]
Like any international treaty, they imply some loss of sovereignty
As economists we have no right to condemn non-economic viewsBrexit is more about identity, history, belonging, than economicsSurveys suggest that many (not all) Brexit voters are willing to pay
As citizens, we have every right, but ...We should not claim too much
Project Fear? Brexit will be less Dunkirk, more Winter of Discontent
We should not abuse our position
We should declare our interestsSpeaking as a citizen ...... of Ireland, Europe, and the World
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 22 / 29
Policy Relevance
Back to the Science
Back to the Science: What is the best trade agreement for the UK?
“Global Britain”?
“I don’t think it makes sense for us to pretend we should remain in the singlemarket and I think there are real question marks about whether it makessense to remain in the customs union. [Doing so ... ] could undermine thegovernment’s ability to sign trade deals with countries outside the block.”
- Mervyn King, Former Governor, Bank of England, 26 Dec. 2016
The Single Market?
The Single Market is a trade agreement!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 23 / 29
Policy Relevance
Back to the Science
Back to the Science: What is the best trade agreement for the UK?
“Global Britain”?
“I don’t think it makes sense for us to pretend we should remain in the singlemarket and I think there are real question marks about whether it makessense to remain in the customs union. [Doing so ... ] could undermine thegovernment’s ability to sign trade deals with countries outside the block.”
- Mervyn King, Former Governor, Bank of England, 26 Dec. 2016
The Single Market?
The Single Market is a trade agreement!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 23 / 29
Policy Relevance
Back to the Science
Back to the Science: What is the best trade agreement for the UK?
“Global Britain”?
“I don’t think it makes sense for us to pretend we should remain in the singlemarket and I think there are real question marks about whether it makessense to remain in the customs union. [Doing so ... ] could undermine thegovernment’s ability to sign trade deals with countries outside the block.”
- Mervyn King, Former Governor, Bank of England, 26 Dec. 2016
The Single Market?
The Single Market is a trade agreement!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 23 / 29
Policy Relevance
Back to the Science
Back to the Science: What is the best trade agreement for the UK?
“Global Britain”?
“I don’t think it makes sense for us to pretend we should remain in the singlemarket and I think there are real question marks about whether it makessense to remain in the customs union. [Doing so ... ] could undermine thegovernment’s ability to sign trade deals with countries outside the block.”
- Mervyn King, Former Governor, Bank of England, 26 Dec. 2016
The Single Market?
The Single Market is a trade agreement!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 23 / 29
Policy Relevance
Back to the Science
Back to the Science: What is the best trade agreement for the UK?
“Global Britain”?“I don’t think it makes sense for us to pretend we should remain in the singlemarket and I think there are real question marks about whether it makessense to remain in the customs union. [Doing so ... ] could undermine thegovernment’s ability to sign trade deals with countries outside the block.”
- Mervyn King, Former Governor, Bank of England, 26 Dec. 2016
The Single Market?
The Single Market is a trade agreement!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 23 / 29
Policy Relevance
Back to the Science
Back to the Science: What is the best trade agreement for the UK?
“Global Britain”?“I don’t think it makes sense for us to pretend we should remain in the singlemarket and I think there are real question marks about whether it makessense to remain in the customs union. [Doing so ... ] could undermine thegovernment’s ability to sign trade deals with countries outside the block.”
- Mervyn King, Former Governor, Bank of England, 26 Dec. 2016
The Single Market?
The Single Market is a trade agreement!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 23 / 29
Policy Relevance
Back to the Science
Back to the Science: What is the best trade agreement for the UK?
“Global Britain”?“I don’t think it makes sense for us to pretend we should remain in the singlemarket and I think there are real question marks about whether it makessense to remain in the customs union. [Doing so ... ] could undermine thegovernment’s ability to sign trade deals with countries outside the block.”
- Mervyn King, Former Governor, Bank of England, 26 Dec. 2016
The Single Market?
The Single Market is a trade agreement!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 23 / 29
Policy Relevance
Back to the Science
Back to the Science: What is the best trade agreement for the UK?
“Global Britain”?“I don’t think it makes sense for us to pretend we should remain in the singlemarket and I think there are real question marks about whether it makessense to remain in the customs union. [Doing so ... ] could undermine thegovernment’s ability to sign trade deals with countries outside the block.”
- Mervyn King, Former Governor, Bank of England, 26 Dec. 2016
The Single Market?
The Single Market is a trade agreement!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 23 / 29
Policy Relevance
Back to the Science
Back to the Science: What is the best trade agreement for the UK?
“Global Britain”?“I don’t think it makes sense for us to pretend we should remain in the singlemarket and I think there are real question marks about whether it makessense to remain in the customs union. [Doing so ... ] could undermine thegovernment’s ability to sign trade deals with countries outside the block.”
- Mervyn King, Former Governor, Bank of England, 26 Dec. 2016
The Single Market?
The Single Market is a trade agreement!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 23 / 29
Policy Relevance
Who to Trade With?
[Sampson (2017), Dhingra et al. (2017)]
Lessons from Ricardo:
Countries that are very different have the potential for large gains ...
... but also for greatest disruption
The ideal trade agreement:
Respecting comparative advantage – but not too much ...
Nearby - so the agreement works with gravity, not against it
Deep: Including regulation and “behind-the-border” protection
Comprehensive: Covering agriculture and services as well as industry
So, what is the ideal trade agreement for the UK?
The Single Market, of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 24 / 29
Policy Relevance
Who to Trade With?
[Sampson (2017), Dhingra et al. (2017)]
Lessons from Ricardo:
Countries that are very different have the potential for large gains ...
... but also for greatest disruption
The ideal trade agreement:
Respecting comparative advantage – but not too much ...
Nearby - so the agreement works with gravity, not against it
Deep: Including regulation and “behind-the-border” protection
Comprehensive: Covering agriculture and services as well as industry
So, what is the ideal trade agreement for the UK?
The Single Market, of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 24 / 29
Policy Relevance
Who to Trade With?
[Sampson (2017), Dhingra et al. (2017)]
Lessons from Ricardo:
Countries that are very different have the potential for large gains ...
... but also for greatest disruption
The ideal trade agreement:
Respecting comparative advantage – but not too much ...
Nearby - so the agreement works with gravity, not against it
Deep: Including regulation and “behind-the-border” protection
Comprehensive: Covering agriculture and services as well as industry
So, what is the ideal trade agreement for the UK?
The Single Market, of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 24 / 29
Policy Relevance
Who to Trade With?
[Sampson (2017), Dhingra et al. (2017)]
Lessons from Ricardo:
Countries that are very different have the potential for large gains ...
... but also for greatest disruption
The ideal trade agreement:
Respecting comparative advantage – but not too much ...
Nearby - so the agreement works with gravity, not against it
Deep: Including regulation and “behind-the-border” protection
Comprehensive: Covering agriculture and services as well as industry
So, what is the ideal trade agreement for the UK?
The Single Market, of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 24 / 29
Policy Relevance
Who to Trade With?
[Sampson (2017), Dhingra et al. (2017)]
Lessons from Ricardo:
Countries that are very different have the potential for large gains ...
... but also for greatest disruption
The ideal trade agreement:
Respecting comparative advantage – but not too much ...
Nearby - so the agreement works with gravity, not against it
Deep: Including regulation and “behind-the-border” protection
Comprehensive: Covering agriculture and services as well as industry
So, what is the ideal trade agreement for the UK?
The Single Market, of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 24 / 29
Policy Relevance
Who to Trade With?
[Sampson (2017), Dhingra et al. (2017)]
Lessons from Ricardo:
Countries that are very different have the potential for large gains ...
... but also for greatest disruption
The ideal trade agreement:
Respecting comparative advantage – but not too much ...
Nearby - so the agreement works with gravity, not against it
Deep: Including regulation and “behind-the-border” protection
Comprehensive: Covering agriculture and services as well as industry
So, what is the ideal trade agreement for the UK?
The Single Market, of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 24 / 29
Policy Relevance
Who to Trade With?
[Sampson (2017), Dhingra et al. (2017)]
Lessons from Ricardo:
Countries that are very different have the potential for large gains ...
... but also for greatest disruption
The ideal trade agreement:
Respecting comparative advantage – but not too much ...
Nearby - so the agreement works with gravity, not against it
Deep: Including regulation and “behind-the-border” protection
Comprehensive: Covering agriculture and services as well as industry
So, what is the ideal trade agreement for the UK?
The Single Market, of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 24 / 29
Policy Relevance
Who to Trade With?
[Sampson (2017), Dhingra et al. (2017)]
Lessons from Ricardo:
Countries that are very different have the potential for large gains ...
... but also for greatest disruption
The ideal trade agreement:
Respecting comparative advantage – but not too much ...
Nearby - so the agreement works with gravity, not against it
Deep: Including regulation and “behind-the-border” protection
Comprehensive: Covering agriculture and services as well as industry
So, what is the ideal trade agreement for the UK?
The Single Market, of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 24 / 29
Policy Relevance
Who to Trade With?
[Sampson (2017), Dhingra et al. (2017)]
Lessons from Ricardo:
Countries that are very different have the potential for large gains ...
... but also for greatest disruption
The ideal trade agreement:
Respecting comparative advantage – but not too much ...
Nearby - so the agreement works with gravity, not against it
Deep: Including regulation and “behind-the-border” protection
Comprehensive: Covering agriculture and services as well as industry
So, what is the ideal trade agreement for the UK?
The Single Market, of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 24 / 29
Policy Relevance
Who to Trade With?
[Sampson (2017), Dhingra et al. (2017)]
Lessons from Ricardo:
Countries that are very different have the potential for large gains ...
... but also for greatest disruption
The ideal trade agreement:
Respecting comparative advantage – but not too much ...
Nearby - so the agreement works with gravity, not against it
Deep: Including regulation and “behind-the-border” protection
Comprehensive: Covering agriculture and services as well as industry
So, what is the ideal trade agreement for the UK?
The Single Market, of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 24 / 29
Policy Relevance
Who to Trade With?
[Sampson (2017), Dhingra et al. (2017)]
Lessons from Ricardo:
Countries that are very different have the potential for large gains ...
... but also for greatest disruption
The ideal trade agreement:
Respecting comparative advantage – but not too much ...
Nearby - so the agreement works with gravity, not against it
Deep: Including regulation and “behind-the-border” protection
Comprehensive: Covering agriculture and services as well as industry
So, what is the ideal trade agreement for the UK?
The Single Market, of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 24 / 29
Policy Relevance
Who to Trade With?
[Sampson (2017), Dhingra et al. (2017)]
Lessons from Ricardo:
Countries that are very different have the potential for large gains ...
... but also for greatest disruption
The ideal trade agreement:
Respecting comparative advantage – but not too much ...
Nearby - so the agreement works with gravity, not against it
Deep: Including regulation and “behind-the-border” protection
Comprehensive: Covering agriculture and services as well as industry
So, what is the ideal trade agreement for the UK?
The Single Market, of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 24 / 29
Policy Relevance
Who to Trade With?
[Sampson (2017), Dhingra et al. (2017)]
Lessons from Ricardo:
Countries that are very different have the potential for large gains ...
... but also for greatest disruption
The ideal trade agreement:
Respecting comparative advantage – but not too much ...
Nearby - so the agreement works with gravity, not against it
Deep: Including regulation and “behind-the-border” protection
Comprehensive: Covering agriculture and services as well as industry
So, what is the ideal trade agreement for the UK?
The Single Market, of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 24 / 29
Policy Relevance
Who to Trade With?
[Sampson (2017), Dhingra et al. (2017)]
Lessons from Ricardo:
Countries that are very different have the potential for large gains ...
... but also for greatest disruption
The ideal trade agreement:
Respecting comparative advantage – but not too much ...
Nearby - so the agreement works with gravity, not against it
Deep: Including regulation and “behind-the-border” protection
Comprehensive: Covering agriculture and services as well as industry
So, what is the ideal trade agreement for the UK?
The Single Market, of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 24 / 29
Policy Relevance
Who to Trade With?
[Sampson (2017), Dhingra et al. (2017)]
Lessons from Ricardo:
Countries that are very different have the potential for large gains ...
... but also for greatest disruption
The ideal trade agreement:
Respecting comparative advantage – but not too much ...
Nearby - so the agreement works with gravity, not against it
Deep: Including regulation and “behind-the-border” protection
Comprehensive: Covering agriculture and services as well as industry
So, what is the ideal trade agreement for the UK?
The Single Market, of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 24 / 29
Policy Relevance
Who to Trade With?
[Sampson (2017), Dhingra et al. (2017)]
Lessons from Ricardo:
Countries that are very different have the potential for large gains ...
... but also for greatest disruption
The ideal trade agreement:
Respecting comparative advantage – but not too much ...
Nearby - so the agreement works with gravity, not against it
Deep: Including regulation and “behind-the-border” protection
Comprehensive: Covering agriculture and services as well as industry
So, what is the ideal trade agreement for the UK?
The Single Market, of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 24 / 29
Policy Relevance
Who to Trade With?
[Sampson (2017), Dhingra et al. (2017)]
Lessons from Ricardo:
Countries that are very different have the potential for large gains ...
... but also for greatest disruption
The ideal trade agreement:
Respecting comparative advantage – but not too much ...
Nearby - so the agreement works with gravity, not against it
Deep: Including regulation and “behind-the-border” protection
Comprehensive: Covering agriculture and services as well as industry
So, what is the ideal trade agreement for the UK?
The Single Market, of course!
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 24 / 29
Conclusion
Outline
1 The Dawn of Economic Theory
2 David Ricardo’s Big Idea: Trade and Comparative Advantage
3 Trade and Income Distribution
4 What Ricardo Didn’t Know
5 Policy Relevance
6 Conclusion
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 25 / 29
Conclusion
Conclusion
Ricardo’s Legacy:
Economics as a science
Two of the three big ideas in international trade theory
Role of Theory
Don’t take exact predictions too seriously; conditional forecasts only
A lens through which to view the world ...
... and flush out bad ideas
Bad ideas?
Not Brexit per se (in economic terms at least)
Rather:
MercantilismAnti-GravityGlobal Britain
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 26 / 29
Conclusion
Conclusion
Ricardo’s Legacy:
Economics as a science
Two of the three big ideas in international trade theory
Role of Theory
Don’t take exact predictions too seriously; conditional forecasts only
A lens through which to view the world ...
... and flush out bad ideas
Bad ideas?
Not Brexit per se (in economic terms at least)
Rather:
MercantilismAnti-GravityGlobal Britain
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 26 / 29
Conclusion
Conclusion
Ricardo’s Legacy:
Economics as a science
Two of the three big ideas in international trade theory
Role of Theory
Don’t take exact predictions too seriously; conditional forecasts only
A lens through which to view the world ...
... and flush out bad ideas
Bad ideas?
Not Brexit per se (in economic terms at least)
Rather:
MercantilismAnti-GravityGlobal Britain
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 26 / 29
Conclusion
Conclusion
Ricardo’s Legacy:
Economics as a science
Two of the three big ideas in international trade theory
Role of Theory
Don’t take exact predictions too seriously; conditional forecasts only
A lens through which to view the world ...
... and flush out bad ideas
Bad ideas?
Not Brexit per se (in economic terms at least)
Rather:
MercantilismAnti-GravityGlobal Britain
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 26 / 29
Conclusion
Conclusion
Ricardo’s Legacy:
Economics as a science
Two of the three big ideas in international trade theory
Role of Theory
Don’t take exact predictions too seriously; conditional forecasts only
A lens through which to view the world ...
... and flush out bad ideas
Bad ideas?
Not Brexit per se (in economic terms at least)
Rather:
MercantilismAnti-GravityGlobal Britain
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 26 / 29
Conclusion
Conclusion
Ricardo’s Legacy:
Economics as a science
Two of the three big ideas in international trade theory
Role of Theory
Don’t take exact predictions too seriously; conditional forecasts only
A lens through which to view the world ...
... and flush out bad ideas
Bad ideas?
Not Brexit per se (in economic terms at least)
Rather:
MercantilismAnti-GravityGlobal Britain
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 26 / 29
Conclusion
Conclusion
Ricardo’s Legacy:
Economics as a science
Two of the three big ideas in international trade theory
Role of Theory
Don’t take exact predictions too seriously; conditional forecasts only
A lens through which to view the world ...
... and flush out bad ideas
Bad ideas?
Not Brexit per se (in economic terms at least)
Rather:
MercantilismAnti-GravityGlobal Britain
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 26 / 29
Conclusion
Conclusion
Ricardo’s Legacy:
Economics as a science
Two of the three big ideas in international trade theory
Role of Theory
Don’t take exact predictions too seriously; conditional forecasts only
A lens through which to view the world ...
... and flush out bad ideas
Bad ideas?
Not Brexit per se (in economic terms at least)
Rather:
MercantilismAnti-GravityGlobal Britain
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 26 / 29
Conclusion
Conclusion
Ricardo’s Legacy:
Economics as a science
Two of the three big ideas in international trade theory
Role of Theory
Don’t take exact predictions too seriously; conditional forecasts only
A lens through which to view the world ...
... and flush out bad ideas
Bad ideas?
Not Brexit per se (in economic terms at least)
Rather:
MercantilismAnti-GravityGlobal Britain
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 26 / 29
Conclusion
Conclusion
Ricardo’s Legacy:
Economics as a science
Two of the three big ideas in international trade theory
Role of Theory
Don’t take exact predictions too seriously; conditional forecasts only
A lens through which to view the world ...
... and flush out bad ideas
Bad ideas?
Not Brexit per se (in economic terms at least)
Rather:
MercantilismAnti-GravityGlobal Britain
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 26 / 29
Conclusion
Conclusion
Ricardo’s Legacy:
Economics as a science
Two of the three big ideas in international trade theory
Role of Theory
Don’t take exact predictions too seriously; conditional forecasts only
A lens through which to view the world ...
... and flush out bad ideas
Bad ideas?
Not Brexit per se (in economic terms at least)
Rather:
Mercantilism
Anti-GravityGlobal Britain
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 26 / 29
Conclusion
Conclusion
Ricardo’s Legacy:
Economics as a science
Two of the three big ideas in international trade theory
Role of Theory
Don’t take exact predictions too seriously; conditional forecasts only
A lens through which to view the world ...
... and flush out bad ideas
Bad ideas?
Not Brexit per se (in economic terms at least)
Rather:
MercantilismAnti-Gravity
Global Britain
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 26 / 29
Conclusion
Conclusion
Ricardo’s Legacy:
Economics as a science
Two of the three big ideas in international trade theory
Role of Theory
Don’t take exact predictions too seriously; conditional forecasts only
A lens through which to view the world ...
... and flush out bad ideas
Bad ideas?
Not Brexit per se (in economic terms at least)
Rather:
MercantilismAnti-GravityGlobal Britain
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 26 / 29
Conclusion
It’s the Science, Stupid!
March for Science, Saturday April 22, 2017
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 27 / 29
Conclusion
Thanks and Acknowledgements*
Thank you for listening. Comments welcome!
* Much of the author’s research on which this lecture draws has received funding from the European Research Council under theEuropean Union’s Seventh Framework Programme (FP7/2007-2013), ERC grant agreement no. 295669. The contents reflectonly the author’s views and not the views of the ERC or the European Commission, and the European Union is not liable for anyuse that may be made of the information contained therein.
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 27 / 29
Bibliography
Bibliography I
Autor, D. H., D. Dorn, and G. H. Hanson (2013): “The China Syndrome: LocalLabor Market Effects of Import Competition in the United States,” AmericanEconomic Review, 103(6), 2121–2168.
Bagwell, K., and R. W. Staiger (1999): “An Economic Theory of GATT,”American Economic Review, 89(1), 215–248.
Costinot, A. (2009): “An Elementary Theory of Comparative Advantage,”Econometrica, 77(4), 1165–1192.
Costinot, A., D. Donaldson, and I. Komunjer (2012): “What Goods DoCountries Trade? A Quantitative Exploration of Ricardo’s Ideas,” Review ofEconomic Studies, 79(2), 581–608.
Cowgill, B., and C. Dorobantu (2012): “Gravity and Borders in OnlineCommerce: Results from Google,” Working paper, university of oxford.
Dhingra, S., H. Huang, G. Ottaviano, J. Paulo Pessoa, T. Sampson, andJ. Van Reenen (2017): “The Costs and Benefits of Leaving the EU: Trade Effects,”Economic Policy, 32(92), 651–705.
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 27 / 29
Bibliography
Bibliography II
Dornbusch, R., S. Fischer, and P. A. Samuelson (1977): “ComparativeAdvantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods,”American Economic Review, 67(5), 823–839.
Eaton, J., and S. Kortum (2002): “Technology, Geography, and Trade,”Econometrica, 70(5), 1741–1779.
Ethier, W. (1974): “Some of the Theorems of International Trade with Many Goodsand Factors,” Journal of International Economics, 4(2), 199–206.
Feenstra, R. C., and A. Sasahara (2017): “The China Shock, Exports and U.S.Employment: A Global Input-Output Analysis,” Working Paper 24022, NationalBureau of Economic Research.
Findlay, R. (1974): “Relative Prices, Growth and Trade in a Simple RicardianSystem,” Economica, 41(161), 1–13.
Head, K., and T. Mayer (2014): “Gravity Equations: Workhorse, Toolkit, andCookbook,” in G. Gopinath, E. Helpman, and K. Rogoff (eds.): Handbook ofInternational Economics, Vol. 4, Elsevier.
Keller, W., and S. R. Yeaple (2013): “The Gravity of Knowledge,” AmericanEconomic Review, 103(4), 1414–1444.
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 28 / 29
Bibliography
Bibliography III
Krugman, P. R. (1981): “Intraindustry Specialization and the Gains from Trade,”Journal of Political Economy, 89(5), 959–973.
Lendle, A., M. Olarreaga, S. Schropp, and P.-L. Vezina (2016): “There GoesGravity: eBay and the Death of Distance,” Economic Journal, 126(591), 406–441.
MacDougall, G. (1951): “British and American Exports: A Study Suggested by theTheory of Comparative Costs. Part I,” Economic Journal, 61(244), 697–724.
Maggi, G., M. Mrazova, and J. P. Neary (2017): “Choked by Red Tape? ThePolitical Economy of Wasteful Trade Barriers,” in preparation.
Maggi, G., and A. Rodrıguez-Clare (1998): “The Value of Trade Agreements inthe Presence of Political Pressures,” Journal of Political Economy, 106(3), 574–601.
Mrazova, M., and J. P. Neary (2017): “Not so Demanding: Demand Structureand Firm Behavior,” forthcoming in American Economic Review.
Portes, R., and H. Rey (2005): “The Determinants of Cross-Border Equity Flows,”Journal of International Economics, 65(2), 269–296.
Sampson, T. (2017): “Brexit: The Economics of International Disintegration,” Journalof Economic Perspectives, 31(4), 163–84.
J.P. Neary (Oxford) Ricardo to Brexit Nov. 28, 2017 29 / 29