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Quotation of the Day…

Posted By Don Boudreaux On August 21, 2012 @ 8:33 am In Balance of Payments,History,Myths and Fallacies,Trade | Comments Disabled

… is from page 277 of Kevin O’Rourke’s and Jeffrey Williamson’s 1999 book, Globalization and History [1]; 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 [2]‘ (or the lower is its ‘trade surplus’).

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[1] Globalization and History: http://www.amazon.com/Globalization-History-Evolution-Nineteenth-Century-Atlantic/dp/0262150492/ref=la_B001HD1H9C_1_4?ie=UTF8&qid=1345552319&sr=1-4

[2] the greater the inflow of international capital to a country (say, the United States), the higher is that country’s ‘trade deficit: http://www.econlib.org/library/Enc/BalanceofPayments.html

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