The Pure Theory of International Trade

The Pure Theory of International Trade

“His Pure Theory of International Trade was, it would appear, the first comprehensive formal statement of pure trade theory.”
Rudy Dornbush

Introduction to the 1960 study:

The English classical model of foreign trade is the source of many propositions which form the body of international trade theory today. Despite attacks on other branches of classical theory it still survives as a basic tool of analysis. Its survival can be attributed to its applicability to leading policy issues in the country in which it originated, and to the power of its methodology: it was logically immune to the criticisms of general equilibrium and macroeconomic analysis.

The classical economists were content to establish the direction in which the terms of trade move as a result of such disturbances as dishoarding, tariff adjustments, devaluation, income transfers and productivity changes. Nowadays more refined methods make it possible to derive more implications from the model, implicit in their analysis, and to ascertain the quantitative extent of the change in the terms of trade. The purpose of this paper is to derive and summarize these results.

Specifically, I shall construct an international trade model owing its origin to the classical school, and apply it to determine the exact effects on international equilibrium of unilateral transfers, productivity changes, export and import taxes, and production and consumption taxes. Many of the conclusions are already known, but it is believed that the methods employed will help to simplify the techniques used in this branch of international trade theory, and that the results established will provide a convenient survey of the subject.