New Directions in Trade Theory.

• Author: Slotkin, Michael H.

For the latest offering from the Studies in International Trade Policy series, a book entitled, New Directions in Trade Theory, the editors "sought to enlist a number of the leading specialists in international trade theory and ask them to write on some new and different topic, something perhaps they had toyed with in their minds but never quite put together, or perhaps a new and distinctive approach to a topic that others had already examined" [p. 1]. The result is a masterful collection of papers ranging in subject matter from complexity theory and dynamic comparative advantage to endogenous protection and managed trade, all designed to influence the future course of trade policy research, and generally speaking, succeeding in this task.

Following an introductory chapter, and a keynote address by Paul Samuelson in which he reaffirms the historic role of trade and trade theorists on the vanguard of economic exploration, Paul Krugman expounds on the use of complexity theory as an explanatory for both interregional and international trade. The latest trend in non-linear dynamics, complexity theory is best explained by the concept of convection. Using a suitable catalyzing agent such as temperature differential, fluid in a pan evolves into a more complex structure, convection cells, which are considered an emergent property. That is, they are not unique, nor are they predictable from the model's underlying properties. In a similar fashion, Krugman shows that production location can be an emergent property in a model where transport costs serve as the catalyzing agent. This result accords with Krugman's related work on economics and geography, and highlights the notion that geographically localized production and trade patterns can be the result of historical accident. The problem with complexity theory, and one Krugman adumbrates throughout the piece, is the reliance on computer simulation due to the model's lack of an analytical solution. All manner of equilibria are possible, and despite Krugman's Midas touch, one must question the long run potential of this particular research program.

In chapter four, Wilfred Eithier argues that international economic interactions embody both market determined and societal specific differences, and as a result, he offers a reduced form model of international exchange in which differences in a worker-technology filter process provide a basis for trade. "The filtering process is the net result of economic...