Quotation of the Day…

by Don Boudreaux on August 21, 2012

in Balance of Payments, History, Myths and Fallacies, Trade

… is from page 277 of Kevin O’Rourke’s and Jeffrey Williamson’s 1999 book, Globalization and History; this quotation summarizes empirical findings about the late 19th century that show the naiveté of the popular argument that, with free trade, low-wage countries have a decided advantage over high-wage countries at attracting capital:

[I]nternational capital flows were on balance a force for divergence in the late nineteenth century, flowing from the low-wage Old World to the high-wage but resource-rich New World.  They thus contributed to the North American surge in relative living standards.

And don’t forget that, ceteris paribus, the greater the inflow of international capital to a country (say, the United States), the higher is that country’s ‘trade deficit‘ (or the lower is its ‘trade surplus’).

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