Forex: Economic Growth and Changes in Trade
The world keeps changing. If we are to understand how the patterns and effects of trade flows change over time in a growing world economy, we need to extend the trade theory and to include testable hypotheses about what happens as all the relevant curves shift over time.
Economists have already provided several hypotheses about how demand and supply conditions drift over time, and how these changes affect trade, and the effects of trade on welfare.
We shall always note ways in which both theories and facts about the dynamics of growth and trade can be aligned with a simple model of trade. The basic trade can be aligned with two countries or regions can be given extra working parts that allow it to look something like both the more imaginative theories of trade dynamics introduced here, and the facts that inspired those theories.
This is to say that the resemblance between the basic trade model, suitably modified, and the facts of trade dynamics does not prove that the simple trade model makes either correct assumptions or correct predictions.
The real world is always more complex than any simple model.
It is being offered as a useful parable, a likely analogy to the real world we are all in. In showing conclusions that follow scrupulously within the assumptions of the simple, the theorist is posing an 'as if' question: Don't the available facts suggest that the real world operates as if the same forces affecting trade and its welfare effects in the simple model are operating in the same way, in the more intricate real world?
It is in this spirit of suggesting a resemblance between a model and a more complicated world--- without being able to prove rigorously that the real causes and effects of trade are those highlighted in the model.
As far as technology's progress it absolutely makes old goods more cheaply.
The analysis of technological change in existing goods follows much the same lines as the analysis of factor growth. Technological progress in existing industries represents reductions in input-output ratios.
If there were a 10 percent rise in the amount produced with given amounts of factor inputs, this 10 percent increase in the productivity of all the factors of production is equivalent to a 10 percent rate of growth in all the factors, with the terms that with the development each factor ends up getting paid 10 percent more per unit of factor input.