Understanding Global Trade

by Elhanan Helpman

Global trade is of vital interest to citizens as well as policymakers, yet it is widely misunderstood. This compact exposition of the market forces underlying international commerce addresses both of these concerned groups, as well as the needs of students and scholars. Although it contains no equations, it is almost mathematical in its elegance, precision, and power of expression.

Understanding Global Trade provides a thorough explanation of what shapes the international organization of production and distribution and the resulting trade flows. It reviews the evolution of knowledge in this field from Adam Smith to today as a process of theoretical modeling, accumulation of new empirical data, and then revision of analytical frameworks in response to evidence and changing circumstances. It explains the sources of comparative advantage and how they lead countries to specialize in making products which they then sell to other countries. While foreign trade contributes to the overall welfare of a nation, it also creates winners and losers, and Helpman describes mechanisms through which trade affects a country's income distribution.

The book provides a clear and original account of the revolutions in trade theory of the 1980s and the most recent decade. It shows how scholars shifted the analysis of trade flows from the sectoral level to the business-firm level, to elucidate the growing roles of multinational corporations, offshoring, and outsourcing in the international division of labor. Helpman’s explanation of the latest research findings is essential for an understanding of world affairs.

Genres: Economics, Business, Nonfiction

232 pages, Hardcover

First published April 25, 2011

About the author

Elhanan Helpman is the Galen L. Stone Professor of International Trade at Harvard University.

Reviews

[Frank Stein · Rating 3 out of 5]

Despite claiming to provide a quick, non-mathematical introduction to contemporary trade theory, there’s a lot of material left broached and unexplained in this book. Nonetheless, it still provides a series of quick and scintillating insights into contemporary trade debates.

The book basically traces the evolution of trade theory over the past 200 years, from David Ricardo’s Comparative Advantage theory, which said that every country specializes in goods in which it has a relative advantage over others (not an absolute advantage), to the Hecksher-Olin factor theory, which says that countries specialize in goods which require the particular factors they have more of (say, more capital or more labor), to the “new” trade theory, which demonstrates that product differentiation and economies of scale mean countries often just trade greater varieties of the same types of goods with each other.

None of these trade theories is incorrect since all explain many aspects of international trade, yet the new trade theory fits best with contemporary evidence. It explains why most of the differences between high and low trading countries are explained by higher trading countries trading more types of goods, not more of one type of good. It also explains why much trade between countries is “intra-industry,” or the trading back and forth of similar industry products. As Paul Krugman showed in 1980 (which helped him win the Nobel Prize), the “home market” benefits of a large domestic demand for a product explains why some industries locate in certain regions. If there are high fixed costs to trade, a large firm in a large market is more likely to overcome them when exporting, leading to disproportionately large influence of home markets on industry location. The home market effect also has a disproportionate effect on sectors with high trade costs and with goods difficult to differentiate (like glassware, furniture, and tires).

There’s more worthwhile stuff on Foreign Direct Investment and distributional conflict here, as well as on the creative ways economists have tried to measure export intensity and trade volumes. On the whole, it provides much food for thought, but I wish the author had slowed down a little and been a little more clear about his questions and assumptions.

[Nils Lehr · Rating 4 out of 5]

Definitely worth reading if you want a non-mathematical introduction to economic trade theory. Very clearly written. However, do not expect a long historical overview or extensive case studies, the book mainly covers published papers on economic trade in goods.

[Frank Van De P · Rating 3 out of 5]

A bit technical, but helpful in explaining key concepts.

[Cody · Rating 1 out of 5]

Really boring.

Here is an example of taking an inherently boring subject.... Albeit important ... And surprising no one by making it boring.

[Michael Kruse · Rating 3 out of 5]

A helpful book providing an overview of 200 years of economic theory relating to international trade. However, the book advertises itself as explaining this history in "plain English." It does not succeed. The book would have benefited from beginning each chapter or section with a brief statement of what was to be concluded, and then making the supporting case. Portions of the book are incredibly dense with lingo unfamiliar to anyone but economists, and with no clear sense of where the author is headed. That said, the insights are helpful and worth the time invested if you really want to better understand global trade. It is just that "plain English" is a considerable stretch.

[Jason Furman · Rating 5 out of 5]

A terrific survey/explication of 200 years of research on trade theory and empirics. It is very much model-based with less immediate policy relevance, although Helpman says it is intended for a general reader it seems more pitched to a non-specialist economist.