Earlier studies based on Bretton Woods data were only refuted because the data sets of the later studies were insufficiently long. It may be, therefore, that Himarios is one of many that will now be able to demonstrate that long-term equilibrium is possible. It may that it requires nearly at least three decades' worth of data and a multi-country study in order to see the equilibrium emerge, meaning that previous theories were simply not taking into consideration the time frames that would be required for production, wage and policy shifts to be implemented and have their impact on a nation's balance of trade.
Himarios' findings do suggest that externalities cannot be maintained. While a single government can maintain consistent economic policy for decades seemingly regardless of the consequences (Cuba or North Korea, for example) a free economy cannot. Eventually a trade deficit will result in a workforce demanding jobs, for example, leading government to reduce trade barriers or lower the value of its currency. A persistent surplus will result in an overheated economy. China is not yet priced into the stratosphere, but it is becoming priced out of reach of many Chinese. Such a situation can be predicted to eventually lead to civic unrest, which would again spur the removal of externalities. The argument to be made, then, is not whether externalities can be maintained forever -- they cannot -- but for how long they can be maintained. The answer to this question, given the examples post-World War Two, appears to be in the decades. The longer the externalities are sustained against the forces of basic economies, the bigger will be the collapse.
Conclusion
For many years, economists had found that trade balance equilibrium was not achieved through exchange rate fluctuations alone. This hinted that if such equilibrium were probable, it would come about only as the result of a confluence of multiple factors. The externalities that cause the disequilibrium in the trade balance will eventually need to be unwound. While for years, evidence of long-term equilibrium under free currency floats could not be validated, in recent years evidence has begun to emerge supporting the idea of trade balance equilibrium. This is not unreasonable, considering the types of externalities that need to be adjusted in order to bring about a state of equilibrium....
4 trillion to about $5 trillion dollars at the end of 2008 to support a rise in U.S. net external debt from $3.3 trillion to $7.4 trillion. (Ibid. 6) Continued financing of the U.S. trade deficits by the rest of the world is also not without its long-term problems: the U.S. would accumulate so much debt over time that the ultimate cost of adjustment would become too high for the
The other implication is the impact of the balance of payments on the business. The negative balance of payments represents an outflow of wealth, which slows domestic economic growth. The U.S. becomes less competitive as a result. For most companies, this places downward pressure on costs. In many cases, the downward cost pressure results in offshoring, which exacerbates the balance of payments deficit. Griswold (1999) argues that this is beneficial
Significance of the Study This study is significant because it sheds light on a very important contributor to local and international trade. Trade fairs have a long history in providing a meeting place for buyers and sellers. They are an important channel of communication for B2B buyers and sellers. This is a significant area for study because there are limited channels of communication between B2B buyers and sellers. The previous sections
International Trade Theories International trade may be classified as the trade of capital, goods, and services across international boundaries or areas. In many nations, such trade signifies a substantial share of the country's gross domestic product (GDP). While international trade continues to be present throughout a lot of significant research for trade history (see Silk Road, Amber Road), the fact remains that the over societal, economic and political importance for international
Trade Agreements and Negotiations on International Trade International Trade Trade is important to countries all around the world. International trade opens up job opportunities and also leads to development of economic activity in every region of the trading country. The trading countries must also ensure that traders, whether self-employed entrepreneur, corporate executive or pensioner must bear the responsibility of making sure that goods and services are transported efficiently to global markets.
Trade: Gains From Trade Ricardo vs. Smith Heckscher-Ohlin and the Linder Hypothesis Problems with Specialization Benefits of Trade to the United States Developing World, Trade, and Globalization Trade: Gains from Trade The concept of comparative advantage in trade is an old and longstanding one. Simply put, the idea of comparative advantage is that a nation, by playing to its strengths, can experience greater gains from trade than from self-sufficiency. "By instead concentrating on the things you do
Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.
Get Started Now