The true story of wine and cloth, or: building blocks of an evolutionary political economy of international trade

Standard trade theory is a theory about the structure of international production which emerges from an international arbitrage equilibrium. It is not a theory about the activity of trading which is simply taken for granted or which is treated implicitly in the concept of exogenous trade costs. This paper proposes an alternative evolutionary framework based on networks as structures of non-price interactions into which price/quantity-interactions are embedded. These networks manifest different levels with specific problems of coordination and communication, i.e. levels of market transactions, of transaction-enabling transactions, of markets for market access rights, and of the respective transaction-enabling transactions. Furthermore, the theory is based on the analysis of capabilities to trade, resting upon competitive advantage, which cannot be imitated. The exploitation of competitive advantage presupposes the capability to control network interactions, identified as social capital. Finally, the security of market access reflects power balances among countries.

Carsten Herrmann-PillathEmail: