ABSTRACT
The happy ending of the story of mutually beneficial trade would therefore need very considerable dilution. While there are static welfare gains from specialising according to comparative advantage when internal resources are fully mobile, the general presumption that poor countries have a comparative advantage in goods with low capital/labour ratios cannot be sustained. Therefore, general recommendations that poor economies should specialise in labour-intensive exports are simple-minded or mischievous. Further, when trade opportunities do bring unemployed resources into voluntary employment, static welfare is obviously increased thereby. But the existing trade patterns between rich and poor countries cannot be interpreted as merely a result of this pleasantly painless transition to full employment of resources in the poor country. Indeed, the best documented examples of vent-forsurplus trade are of a significantly different version from that mentioned above: the only idle resource in this version is a poor country’s natural resource (e.g. Peruvian guano), which enters the poor country’s exports only because of an inflow of both foreign capital and foreign labour, and it’s exploitation creates nothing except the familiar export enclave [Levin, 1960]. Clearly this version of vent-for-surplus is not a story of mutually beneficial trade, but of structural biases in the grains from trade.
