In 1999 Ed Leamer put together a collection of reprinted articles on international trade and invited the authors to respond, in a "creative" fashion, to a questionnaire about their work. He included a paper of mine, "Short-run capital specificity and the pure theory of international trade", first published in the Economic Journal in 1978. Here is my response, with Ed's questions in bold. An edited version appeared in E. Leamer (ed.): Worth Series in Outstanding Contributions in Economics: International Trade, New York: Worth Publishers, 2001.
Biographical Notes
1. What do you want us to know about you? Briefly, please.
Born 1950 in Drogheda, Ireland; educated at University College Dublin and Oxford;
Professor of Political Economy at University College Dublin since 1980.
I have written many (though not enough) papers on international trade and served on many
(too many) professional committees and editorial boards. I have paid extended visits to
quite a few universities in the U.S., Canada and Europe, but for personal reasons have
always preferred to live in Ireland. Perhaps there are professional gains too: as
Saul Bellow said of Chicago, it is far from the beaten track and, by the time new ideas
reach there, they are old and their holes are easily seen through!
Thoughts about my article
2. In one clear sentence, what is the message that your article is communicating?
The assumption that capital is sector-specific has major implications for the behaviour of
open economies, more intuitively appealing than the alternative assumption of intersectorally
mobile capital; but it also rationalises the latter, as relevant to a time horizon long enough
for capital-market disequilibrium to be eliminated.
3. What aspect of this paper would you do differently today, and why?
The paper is very much of its time, so I would probably stick to minor revisions, such as
giving credit to Haberler's 1930s work on the specific-factors model, and updating the
comparison between the two models in Section 6. By today's standards the paper's near-total
reliance on geometric reasoning seems old-fashioned, but that does not justify a rewrite,
since the underlying mathematics were set out in a companion paper
(American Economic Review, 1978). At the time, I hoped the latter might be
remembered for restoring sanity to the literature on factor-market distortions, and
assumed that its non-technical companion would soon be forgotten. Almost exactly the
opposite has happened, which may say something about any author's ability to forecast
how their work will be received!
4. How does this article fit into the literature? What were its precedents and what were its
antecedents? What accounts for the level of interest in this article? Do you expect this article
to have a long life, or will it have disappeared from view in a decade or two?
The article discusses most of its precedents and even some of its antecedents
(such as the paper cited as Mussa (1975), which appeared in the
Journal of Political Economy, 1980). I suppose its continued popularity arises from
the fact that it provides a self-contained overview of the specific-factors model, an
important counter-weight to the Heckscher-Ohlin model which (despite frequent predictions
of its imminent demise) continues to dominate general-equilibrium work in international trade.
Is this a recipe for immortality? Of course I would like to think so, but who knows?!
Some other great articles
5. Which article authored by you but not reprinted in this volume would you most highly
recommend to graduate students in international economics?
I cannot resist mentioning my work with Max Corden on the Dutch Disease (Economic Journal,
1982), with Jim Anderson on policy choice and policy measurement in general equilibrium
(Econometrica, 1992 and Review of Economic Studies, 1996),
and with Dermot Leahy on strategic commitment and the infant-industry argument
(Review of Economic Studies, 1999). However, if I must select a single paper
it would be one which appeared in the Quarterly Journal of Economics, 1985.
This gets its fair share of citations, but mostly because of the technical trick for modelling
factor-price rigidities which it introduces. At a deeper level it stumbled across a key result
which helps explain why factor-price equalisation, though highly unrealistic, plays such a
central role in trade theory, and which also throws light on current debates about the
effects of globalization: as more markets are progressively opened up to international
competition, the responsiveness of the remaining closed markets to domestic shocks is reduced.
6. Which article not authored by you would you most highly recommend to graduate students
in international economics?
Apart from the articles in this volume, the one I would most recommend is Samuelson's
classic on general equilibrium in the Review of Economic Studies, 1952.
This is old-fashioned, difficult and idiosyncratic: only dedicated graduate students will
have the energy to work through it all. But the rewards are great: the paper is a definitive
statement of the structure of general equilibrium models and the ways in which trade interacts
with domestic endowments and technology. It provides a framework which puts an enormous part
of the literature in perspective. No single paper is of comparable importance in imperfect
competition, but two non-trade papers are worth careful study: Dixit and Stiglitz
(American Economic Review, 1977) and Fudenberg and Tirole (American Economic Review,
1984) will prepare you for many applications to trade under monopolistic competition and
oligopoly respectively.
Pearls of wisdom
7. What are the major unresolved questions of international economics?
What are likely to be the hot topics of the next decade?
Although we have made a lot of progress, I still feel we do not know nearly enough about
the effects of trade on efficiency and about the interaction between trade and growth,
especially non-steady-state growth. As for future hot topics, I suspect that the current
vogue for empirical work will continue unabated (though it may degenerate into a fad for
empirical embellishments of theoretical papers); and that both real-world trends and the
internal logic of the subject will prompt further work on globalisation, fragmentation of
production and agglomeration.
8. What advice do you have to offer graduate students in the field of international economics?
This is hard to answer without sounding like Polonius's advice to his son ("Neither a
borrower nor a lender be") or the instruction to exam candidates in 1066 and All That
("Do not write on both sides of the paper at once"). Seriously though, let me make a few
suggestions. Read the literature, but think about the world; learn as much technique as
you can, but use as little as you need to prove your results; never forget that trade theory
is just a branch of microeconomics, but keep in mind that it is a distinct branch (so, for
example, merely translating a general micro paper to a trade context rarely makes a lasting
contribution); above all, write as clearly as possible: there is no surer way of increasing
your readership and maybe even improving your own thought processes.