This paper presents a simple static model of a world economy with two countries, two goods, and two representative agents. Initial endowments are the source of each good. Given that the endowments of the two goods across the two countries are asymmetric, the countries have an incentive to trade. Under certain conditions, it is possible that a onetime increase in a good of one country may be called an endowment shock that reduces the welfare of its trading partner. This endowment shock is the equivalent of manna from heaven.
Get full access to this article
View all access options for this article.
References
1.
AdamsGerardF.GangnesByronShachmuroveYochanan, (2006), “Why is China so Competitive? Measuring and Explaining China's Competitiveness,”The World Economy, 29(2). pp. 95–122, February 2006.
2.
BeckerGary, (2005), “Give Us Your Skilled Masses,”Wall Street Journal, Commentary, November 30.
3.
BhagwatiJagdish, (2004), In Defense of Globalization, Oxford University Press, New York, New York.
4.
DouglasIrwinA., (2003), Free Trade under Fire, Princeton University Press, Princeton, New Jersey.
5.
FriedmanThomasL., (2000), The Lexus and the Olive Tree: Understanding Globalization, Anchor Press.
6.
GomoryRalphE.WilliamJ. Baumol. 2000. Global Trade and Conflicting National Interests. Cambridge, Mass.: MIT Press.
7.
JohnsonGeorgeE.FrankP. Stafford. 1993. “International Competition and Real Wages.”American Economic Review. May, 82, pp. 127–30.
8.
MillJohnS.1844. Essays on Some Unsettled Questions of Political Economy. London: Parker.
9.
RicardoDavid. 1817. On the Principle of Political Economy and Taxation. London: John Murray, 1821. Volume 1 in SraffaP., ed., with the assistance of DobbM. H., The Works and Correspondence of David Ricardo. Cambridge: University of Cambridge Press, 1953.
10.
SamuelsonPaulA.1972. “International Trade for a Rich Country.” Lectures before the Swedish-American Chamber of Commerce, New York City, May 10. Stockholm: Federation of Swedish Industries. Reproduced inThe Collected Scientific Papers of Paul A. Samuelson, Volume 4.. Cambridge, Mass.: MIT Press, 1977, chapter 250.
11.
SamuelsonPaulA.2004. “Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization.”Journal of Economic Perspectives, Volume 18, Number 3, Summer, Pages 135–146.
12.
SenAmartya, (2000), Development as Freedom, Anchor Press.
13.
SmithAdam (1776), The Wealth of Nations, Reprinted by Bantam Classics; 2003.
14.
StiglitzJosephE., (2003), Globalization and Its Discontents, W.W. Norton & Company.
15.
WolfMartin, (2004), Why Globalization Works?Yale University Press, New Haven, Connecticut.