What are the economic, political, and philosophical issues at stake when we examine competing theories of international trade? This video takes a look at how one's
What are the economic, political, and philosophical issues at stake when we examine competing theories of international trade? This video takes a look at how one's worldview may differ depending on whether they follow factor endowment theories of trade or increasing returns to scale. When it comes to factor endowments, one may look at the resources a country brings to the table, the supply of labor as well as the incentives to work, and the natural resources available within a country. One would believe in stability in the economic prospects of countries, mean-reversion, and the ability for a country to "catch-up" to other countries by engaging in economic growth and investing capital productively. For increasing returns to scale, one may be interested in the source of increasing returns, which very often is knowledge, and may be more interested in the economics of innovation and science. One may believe more in the ability of small causes to have very big effects on a country's economy and there may be more focus on how policy can affect trade.