International Economics >> Factor Growth and International Trade
Developments in trade theory, espe¬cially those in respect of factor growth and international trade. The three growth factors that are considered in tracing the relationship between growth and inter¬national trade are:
(a) Growth off actor endowments,
(b) Technical progress, and
(c) Change in tastes and preferences.
The first two growth factors, i.e., growth off actor endowments and technologi¬cal progress, expand the production frontiers and alter the factor proportions. Such changes alter the comparative advantages of the nations and thereby the trade pattern. The change in tastes and preferences alter the social indifference curves and. thereby, their offer curves, demand pattern and terms of trade. The effect of the factor-endowment growth and technical progress on the international trade is discussed in a comparative static model. A comparative static model is one that makes a comparative study of economic phenomena at two different equilib¬rium points at two different points of time. It ignores the process of adjustments in the transition of the system from one equilibrium point to another. The process of adjustments in the transition on a time path is studied in a dynamic model. Such a study is called dynamic analysis we will however confine to the trade theory developed in mode of comparative statics.
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