Trading Blocks: Liberal or Protectionist

Paper Summary:

The writer defines the two terms according to the paper "Protectionist Trade Policies: A Survey of Theory, Evidence and Rationale" by Coughlin, Crystal and Wood. The paper notes that the liberal theory was made popular by the works of Adam Smith, and the concept of protectionism is at the root of the recent trading blocks such as NAFTA, EU, ASEAN and SEATO. The paper attempts to discover which theory is most successful in the real world.

From the Paper:

"Ricardo's theory was that each nation has good points and bad points in its economy. In the classic example of two countries, Ricardo sets up a model where Germany and France only have two products - beer and cheese. The resources in each country are finite, implying that each can produce only a limited amount of goods. Increasing production of one good means reducing production of the other. Each country can produce either good, but Germany is more efficient brewing beer than France and France is more efficient at making cheese than Germany (Coughlin, Crystal & Wood, 304)."

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