International Trade Modelling

MARCEL G. DAGENAIS AND PIERRE-ALAIN MUET The papers published in this book were selected from among the best communica- tions presented at the XXVII Conference of the Applied Econometric Association on International Trade held in Montreal, in September 1989. Slightly more than a decade ago, the theory of international trade underwent a revolution. According to the traditional theory, comparative advantages expressed as differences in labour productivity or in dotations of factors of production were considered as the main drive, if not the unique drive, of international exchanges. Therefore, the established theory could hardly explain why the major part of world trade was taking place between developed industrialized countries with approximately the same labour productivity and the same dotations in natural resources and other factors of production. Indeed, as pointed out by H. G.
Johnson in his Wickselllectures in 1968, many economists in the mid-1960s had underlined the role of a number of factors that were not taken into account in the Heckscher-Ohlin model to explain the develop- ment of international trade, such as: economies of scale, monopolistic competition and product differentiation. However, these phenomena were at that time considered as deviations from the basic model, such as imperfect competition with respect to the Walrasian model.