ABSTRACT
The specializations of the nineteenth century were not simply a device for using to the greatest effect the labours of a given number of human beings; they were above all an engine of growth.
(D. H. Robertson)1
Contrary to the popular notion that economists cannot agree onanything, they really do agree that international trade improveshuman welfare. Beginning with Adam Smith’s explanation of absolute advantage in the late 18th century and David Ricardo’s comparative advantage shortly thereafter, economists have over the past two hundred years developed strong logical arguments to justify free trade policies. Early in the 20th century, Eli Heckscher and Bertil Ohlin developed the general equilibrium model that is still the centerpiece of trade theory. Economists routinely use the Heckscher-Ohlin model to show that free trade takes an economy to a higher level of real national income than can be attained when trade is restricted. Later in the 20th century, Paul Samuelson and others derived additional theoretical implications of the HeckscherOhlin model, such as the Rybczinski theorem that describes how international trade reacts to increases in factors such as capital and labor and the Stolper-Samuelson theorem that details how the gains from trade are distributed among the owners of the factors of production. A couple of decades ago, when the Heckscher-Ohlin model was criticized for assuming that markets operate under perfect competition, James Brander, Gene Grossman, Elhanan Helpman, Paul Krugman and others strengthened the arguments for free trade by showing that there are gains from trade even when production occurs in imperfectly competitive industries that exhibit increasing returns to scale.
