International trade
In the area on international trade, I published two volumes in German in 2001 and 2004: ‘Critique of the pure theory of international trade, Volume one: transaction-theoretic foundations’ and ‘Volume two: Evolutionary political economy’, each about 800 pages. In these books I develop a radically new approach to the theory of international trade, though being based on a very broad and thorough reception of the established literature. Since this kind of lengthy monographs today is not even read by German economists, so far I did not add the third volume about international monetary economics. I decided to extract a few papers for publication in international journals, before I concentrated my subsequent work on the ‘Foundations’. One paper in the Journal of Evolutionary Economics
summarizes my theory:
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The first volume starts out from a simple observation: almost the entire building of the modern theory of trade is not about trading, but about the effects that trading has on the international specialization of countries. Apart from the theory of the multinational enterprise, traders and trading only receive more attention very recently, for example, in the context of theorizing about costs of market entry (such as marketing costs). So I argue that what really determines the patterns of international specialization, is trading and the required 'capacities to trade'. Capacities to trade are complex phenomena and result into the generation of 'trade-enabling transactions' (TETs), services that are complementary to the trade transaction. All this determines the ‘tradability’ of particular products.
A couple of years ago I met Pierpaolo Andriani and listened to his talk about a case study on the transition to quality coffee in Brazil instigated by the Italian company Illycaffè. That turned out to be a wonderful application of my theory. We further substantiate the argument that comparative advantage is not a ‘given’ for international trade, but is actually created, hence ‘performed’ by traders. Performing comparative advantage results into competitive advantage. This piece was also published in JEE:
download paper
A couple of years ago I met Pierpaolo Andriani and listened to his talk about a case study on the transition to quality coffee in Brazil instigated by the Italian company Illycaffè. That turned out to be a wonderful application of my theory. We further substantiate the argument that comparative advantage is not a ‘given’ for international trade, but is actually created, hence ‘performed’ by traders. Performing comparative advantage results into competitive advantage. This piece was also published in JEE:
The second volume builds on a simple idea, too. I argue that international trade policy can be conceived as taking place on an ‘international market for market access rights’. This is not a new idea, as it was raised by researchers such as Hillman or Bagwell and Staiger earlier, but since all of them operate in the standard general equilibrium model of trade, they did not explore the consequences for understanding trade policy institutions in terms of institutional economics, ’new’, ‘evolutionary’, whichever. This perspective is what I add in my book. One core idea is that there are fundamental problems of communication, information and trust in the international market for market access rights, and so trade policy measures often play the role of signals in transmitting information, communicating intentions etc. This leads to a number of new questions about international trade theory, such as why governments are the main subjects in trade policy at all? How can we define a concept of general welfare via taking the actual material interests of different groups affected by international trade into consideration, and not simply an abstract notion derived from the concept of utility in standard preference theory? And so forth. My answers to questions like those resulted into the concept of ‘deliberative trade policy’. Recently, I link this approach with normative issues in designing trade policy, and in understanding the role of civil society in the global economy, based on Hegelian notions. This finalizes my theory of ‘deliberative trade policy’. The first glimpse at that can be found in the book on Hegel co-authored with Ivan Boldyrev, where a full chapter is devoted to this topic.
In 2008, I published a paper that concisely summarizes my theoretical approach in the Journal of Institutional and Theoretical Economics:
In the new Oxford Handbook on International Economic Governance and Market Regulation my approach is included with a separate contribution entitled "Ways out of the Globalization Trilemma: Deliberating Trade Policy".
© Carsten Herrmann-Pillath, Max Weber Centre, Steinplatz 2, 99085 Erfurt, Germany