Theory and Practice of International Trade
Trade and Growth
While the synchronization of national policies required under the gold standard conflicted at times...nonetheless policies aimed at sustaining and steadying effectiove demand would promote both internal stability and of exchange rates Ragnar Nurske 1944
The history of post war capitalism has been one of dominant powers in relative decline. The principal aim here is:
- Relationship between the growth of world trade and world output since 1970
- Evaluate the effectiveness of alternative international monetary regimes
- Consider the trend in world trade and power that will shape the future.
Trade and growth: the mechanism
Stable international monetary systems in the post war increased trade but did not have universally positive effects. Increased reliance on trade can make countries more vulnerable to external shocks.
Trade and growth: some evidence
Between 1870 -1913 there was almost continual increase in world trade and there was a high interdependence between world trade and growth indicated by a high correlation. Growth was less volatile than anytime other than the Bretton Woods system
Trade and growth: the role of trade policies regimes
Pre-1913 world trade was founded on the Gold Standard. It provided stability via automatic adjustments via gold flows. Some have questioned the stability - Not all countries kept to the rules of the game. Rather than balancing through flows of gold, failing economies adjusted via deflation and migration. An additional mechanism was protectionism. This allowed countries to adjust without recourse to deflation or exchange rate realignment.
The interwar period saw reemergence of the Gold Standard but it failed becuase a beggar thy neighbour deflationary type policies and was replaced by the use of independent and uncoordinated trade policies. The growth of world rade was limited by the domestic policies of the surplus countries. For instance the BoE maintained its surplus and prevented the loss of gold. In Germany its persistent payments deficit made it reliant on loans raising the debt burden that undermined creditworthiness. Ultimately the needed to deflate.
Post war saw the Bretton Woods system. He also wanted the cost of adjustment shared between countries with trade surpluses and deficits, so that countries with big surpluses would have to revalue their currencies, as well as deficit countries being forced to devalue. Instead, the Bretton Woods system gave the US currency - which was linked to gold. But the system was asymmetrical in the adjustment was borne by weaker countries who deflated.
