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Roberts Replies Again

January 19, 2004

The point  Mr. Boudreaux is that comparative advantage depends on the differing internal opportunity costs of producing tradable goods.  Those ratios depend on factor endowments.  If the factors can leave, they do not specialize within the country where they have comparative advantage.  They can move abroad where there is absolute advantage.

Don Lloyd is confused about the purpose of Ricardo's example.  Perhaps my reply above to Mr. Boudreaux will be of help. The absolute advantage today is cheap Asian labor which exists in such excess supply that its price cannot be rapidly bid up. There is a difference between trade between countries based on capitalists allocating factors of production to where their respective countries have comparative advantage and the different case of a country's capitalists producing for their domestic markets offshore, as Mr. Lloyd comes close to realizing.

Mr. Palkovsky would benefit from comparing two kinds of capital mobility.  One goes abroad to produce for markets there.  The other goes abroad to use cheap labor there to produce for its home markets.  Offshore production is a new form of capital mobility, one with definite implications for the domestic labor force.

Mr. Boyer: International income redistribution might be a product of free trade, but it is not the product of the CASE FOR FREE TRADE.  The case for free trade is not, and has never been, that it increases world welfare at the expense of individual countries. We do still live in countries.  To be indifferent to one's country's fate is to place oneself outside the community and its interests, a difficult position from which to debate.

 

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