Book Review On Understanding Global Trade Review

The Global practice of trade is of paramount importance and significance to all the citizens and the economic policy makers of a given country or economic bloc. However, this concept of global trade is widely misunderstood and miss conceptualized. The book understanding global trade by Elhanan Helpman provides a thorough and complete explanation of the issues that shape and define the global organization and mechanism of trade and the resulting trade flows. It reviews the process of development and evolution of the technical knowledge in the field of global trade right from the traditional, classical and conventional economists like Adam Smith to today. It follows an ingenious process of theoretical modeling and accumulation of very new and recent economic data. This is done in accompaniment of a sound revision of the analytical frameworks that developed in response to the available evidence and the changing circumstances.
The compact exposition and portrayal of the numerous market forces and dynamics addresses a number of groups concerned with the global market as well as the concerned students and scholars. Although the book does not have any mathematical equations or any mathematical inclination, it seems to be almost mathematical in its elegance, conciseness, precision and power of expression. The book explains the numerous sources of comparative advantage some economies could have over others. It also gives a glimpse of how this comparative advantage can lead these economies to a level of specializing in the products they can manufacture best and sell to the other countries creating a continuum in global trade. The book contends that although foreign trade has an insurmountable contribution to the overall welfare and well-being of a given economic entity, it also creates winners and losers. Thus, Helpman sets out to explain and offer an ingenious description of these mechanisms in this book.
The Global practice of trade is of paramount importance and significance to all the citizens and the economic policy makers of a given country or economic bloc. However, this concept of global trade is widely misunderstood and miss conceptualized. Elhanan Helpman's book "understanding global trade" provides a thorough and complete explanation of the issues that shape and define the global organization and mechanism of trade and the resulting trade flows. It reviews the process of development and evolution of the technical knowledge in the field of global trade. It starts right from the traditional, classical and conventional economists like Adam Smith. It proceeds further to those of today through an ingenious process of theoretical modeling and accumulation of very new and recent economic data. This is done in accompaniment of a sound revision of the analytical frameworks that developed majorly in response to all the evidence that is available together will the changing circumstances.
Thus, this compact exposition and portrayal of the numerous market forces and dynamics addresses a number of groups concerned with the global market as well as the concerned students and scholars. Although the book does not have any mathematical equations or any mathematical inclination, it seems to be almost mathematical in its elegance, conciseness, precision and power of expression.
The book explains the numerous sources of comparative advantage some economies could have over others. The book further gives a glimpse of how this comparative advantage can lead these economies to a level of specializing in the products they can manufacture best and sell to the other countries creating a continuum in global trade. The book contends that although foreign trade has an insurmountable contribution to the overall welfare and well-being of a given economic entity, it also creates winners and losers. Thus, Helpman sets out to explain and offer an ingenious description of these mechanisms in this book.
Elhanan Helpman in the early 1980s helped in the development of a new trade theory. A theory that was a fundamental notion that gave an explanation of what the conventional comparative advantage theory could not achieve. He later on helped in the development of some critical insights into the numerous ways that the modern firms could organize production. Production is not only at a solitary factory but in multiple stages, economic sites, and nations.The insights which in the end could lead to global trade flows that were never envisioned by the previous economists before. In addition with Gene Grossman from the University of Princeton, Helpman also pioneered the extension of the new theory he called New Growth theory. In this, he contended that the information, technology, and economic ideas are imperative determinants of economic progression. More recently, Helpman has carried an investigation of the role played by institutions in both growths and political systems that are geared to determining the policy of trade.
In the world economy, the instance of international interdependency is a very central feature. Central mainly because the fortunes and riches of a given country are always intertwined on the premise of trade, direct foreign investments, and the financial capital outflows. This simply means that the production networks are spread across continents and country economic boundaries. This makes the supply of products in a given country highly dependent on economic activities in another foreign economy.
Whereas this cross-border trade between any countries plays and important role in the modern economics and practice, it also played a very salient and great role during the economic progression in the ancient Neolithic Revolution. For instance, the hunters and gathers of fruit developed into sedentary societies that majorly specialized in food crops. It is because of trade that a number of early civilizations and development of cities are attributed.
Thus, the economists have long wondered and pondered on the question of what drives business and economics and more so foreign trade between countries. Many of the answers, however, have a relation to the dynamics that shape the patterns of specialization. This entails the variations in technology among different countries, the natural endowments, personal preferences, the institutions and the general structure of the market.
This also compelled Adam Smith to contend and think about an analogy of specialization among countries in his publication of the wealth of nations published in the year 1776. In his book, Adam Smith contends that the maxim of every judicious and practical head of a family should never make an attempt to make at home what will turn expensive than can try to make. In the same respect, a Taylor should not make an attempt to make his shoes; he rather buys them from a shoe maker.
Thus, the natural advantages that any country may have over the other, regarding the production of a particular product are at times too great. Great to an extent that it is often acknowledged by the entire world as being in vain to struggle with them. The traditional and conventional explanations of the theory of comparative advantage mainly stem from the sectoral patterns.
They mainly emphasize the forces that usually determine the sectoral supplies in which a given sector is considered as being made up of some similar products for instance cars. This means that the trade flows that exist between countries depend on the supply system characteristics. Thus, the trade of a country is determined mainly by the differences in the sectoral supply levels and the demand levels. In this respect, a country that grows more wheat than it consumes of that wheat will have to export wheat. This draws the conclusion that the primary forces that also mainly shape the demand patterns will also in the end form the structure of foreign trade.
Thus to understand the numerous patterns of specialization and the general trade dynamics, a proper understanding of the theory of comparative advantage and less of absolute advantage is imperative. It is crucial since these patterns are determined by the former and not the latter. An analog is presented that each and every country possessed its technology that it employs in the production and manufacture of its products and with labor services and not any other inputs may be needed for this purpose. This is because each and every product has its requirement for production.
Thus, a variation in the relative paucity of the primary factors of production between countries is very necessary and significant for the differences in the comparative and costs of production. It would consequently lead to the differences in cross-border international trade. Thus, the proportions regarding the factors of production will always vary from one production unit to the other. And the absence of this variation, the price of a given commodity relative to other from a particular country will always be the same regardless of the differences in the relative factors prices.
It implies that the conclusion that is gained by everyone from the notion of trade without the intervention of the government rests mainly on the premise that all the individuals are always alike. However, individuals always differ from one other and this implies that trade may be harmful to some individuals as it lies in favor of others. When the benefits of trade support some individuals and hurt others, the most challenging question is whether the ones who gain, in this case, can compensate the losers.
The notion of economies of scale thus always introduces a degree of arbitrariness into the trade pattern. Mainly because a country which produces an enormous quantity of output in a sector characterized by increasing returns to scale will always gain a cost advantage. The advantage is in that particular area because of the affinity that exists between the high output and the very high productivity in such an industry.
It should, however, be put to note that in some industries, the economies of scale or the diseconomies of scale are not that external to the individual firm. It implies that the firms are not necessarily price takers and thus consider the noncompetitive kind of business conduct explicitly. This condition is referred to as monopoly.
Thus the new trade theory as propounded by Elhanan Helpman, rationalizes the intra-industry trade, gravity, the home trade. It further justifies the significant and crucial estimates for the trade flows. Flows that majorly depend on the interaction that exist between the sectoral intensities of factor. It also depends on exporting the countries’ relative abundance of the factors which exist at the heart of the theory of factor proportions.

Works cited

Helpman, Elhanan. “Understanding Global Trade.” Cambridge, Mass.: Belknap of Harvard UP, 2010.