ABSTRACT
Economic historians, especially those who have worked on the experience of colonial economies, attest to the fact that such circumstances, where trade is a mechanism for economic retrogression, have been historically observed. The reason why Keynesian macroeconomics does not recognise the possibility of economic retrogression through trade lies in a fundamental assumption which underlies its entire structure, namely that more of every commodity can be produced if only the demand for it is larger. Suppose trade takes the form of exporting food and importing a manufactured goods from outside which substitutes for the domestic manufactured goods. For any given level of domestic food availability, there is an inverse relationship between the real wage rate and the level of manufactured goods output. In a situation where greater trade dependence entails larger exports of primary commodities of agricultural origin, international trade becomes a substitute for domestic intersectoral trade and hence restricts the demand for domestic manufactured goods.
