International trade in the present

International trade in the present

Today, the shippers know the next destination of a cargo and

the composition of the load, but these can change according to

the opportunities and obstacles encountered. A project like The

Box shows in a strikingly visual fashion what we mean by trade

networks, or the intricate patterns formed by the flow of goods

across the planet.

In the previous chapter we examined the basic rationale for gains

from trade – comparative advantage. It is a simple but powerful

model, but it misses an important point. Trade in the same goods

and services flows in both directions between the same countries.

As The Economist reported in 2008, “52% of Germany’s exports to

France are things France also produces and exports to Germany”.

That can mean Renaults for Volkswagens, for example. Ricardian

theory does not take into account this common consumer demand

for variety in goods. Varieties are sometimes seen as being

superfluous, but judging by the sales of variations on a practically

identical product, most consumers actually want greater choice

of this kind. In 2008, the Nobel Prize in economics was awarded

3. The State of World Trade

OECD Insights: International Trade 39

to Paul Krugman who has developed a theoretical framework that

helps us understand this two-way trade based on economies of

scale. Firms can provide the varieties of products people want in

an efficient manner by extending their production runs outside the

confines of the local economy.