Exporting and Productivity Growth: Theory

Traditional treatments of the gains from trade were primarily concerned with the static gains realisable from realigning production in accordance with comparative advantage. In an open economy, resources would be (re)allocated more ‘productively’, taking advantage of the opportunities to import those products in whose production the country is relatively less efficient by exporting those in whose production it is relatively more efficient. These gains are available even if autarky production is technically efficient (i.e. on the production possibility frontier), and in a world where technologies exhibit constant returns to scale, firms are largely irrelevant and the effects of trade on the efficiency of resource use within the industry cannot be explored.