Date of Submission


Date of Award


Institute Name (Publisher)

Indian Statistical Institute

Document Type

Doctoral Thesis

Degree Name

Doctor of Philosophy

Subject Name

Quantitative Economics


Economic Research Unit (ERU-Kolkata)


Sarkar, Abhirup (ERU-Kolkata; ISI)

Abstract (Summary of the Work)

The central issues that have engaged trade theorists from its inception can broadly be classified under three leads. First, to identify, what countries trade with each other, or what has come to be known as the question of pattern of trade. Second, the consequent gains that trade allows for. And the third, which is an immediate appendage to the second is to identify the redistribution of income due to trade.The first and the third, as is immediately evident, are issues in positive trade theory. The second is a normative issue, which evidently brings in questions of welfare change of the country as a whole or its constituent groups. These traditional questions of trade theory have remained central till date. Though contingent issues have steered the path of investigation in varied directions, these threefold question can be identified as remaining the core point around which mainstream neoclassical trade theory has developed.1.1 Pattern of TradePositive trade theory seeks an answer to what decides the pattern of trade. Ricardo identified that to be differences in technology in his famous doctrine of Comparative Advantage, where a country which is relatively (comparatively) technologically better off in producing a commodity would produce and export the commodity. Comparative advantage, in Ricardian model is determined exclusively by technological conditions. The difference in technology generates non-identical autarkic relative prices and hence the reason for trade. Heckscher Ohlin (H-O) formulation advances on similar lines to ground the possibility of trade not on technological differences but on differences in endowments. Even with identical technology, difference in endowments generates non-identical autarkic relative prices and hence the opportunity for trade. Be that as it may, reasons for trade has traditionally been identified to be embedded in differences (technological and/or endowment) amongst trading partners. Both the Ricardian and the H-O model as- sume constant returns to scale (CRS) technology and a perfectly competitive market structure.As it happens with all theoretical structures, validation ultimately rests on how well a theory stands up to facts, and on the extent to which it can accommodate the empirical findings. Though it is perfectly legitimate to claim that the competitive model rendered the basic framework in which a wide spectrum of issues did fit in fairly well, even then there were facts which were increasingly giving discomfort to the competitive paradigm. Krugman (1981) points out two such issues, that can be identified as crucial in triggering research to find out alternative models to account for the empirical findings. The first being the fact that a large volume of trade was found to be between countries which were similar (technology or endowment-wise) (Grubel & Llyod (1975)). Thus a comparative advantage theory could not account for such findings. Second, such trade was more of intra industry nature, where similar goods were being cross-hauled in trade. Thus countries were both exporters and importers of similar products. These two findings could not be accommodated into the competitive models with CRS technology.There were some initial attempts to offer informal and tentative explanations to these seeming paradoxes. [Balassa (1967), Grubel (1970), Kravis (1971)). But a full blown formal model was still missing.


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