New trade theory versus old trade policy: a continuing enigma

This paper examines the theoretical and empirical grounds fortrade liberalisation. We note that many of the conventionalarguments relating to the static and dynamic gains from liberalisationare based on fragile theoretical grounds. We also show that,although new trade theory takes account of some of the complexitiesof international trade and although the analytical thrust ofmany models justifies intervention, such policy conclusionsare rejected even by those at the forefront of these theorieson the grounds of political economy arguments which do not standup to careful scrutiny. Finally, we show that arguments favouringtrade liberalisation are not supported by existing empiricalresearch, which generally fails to capture the complex and ambiguouseffects of liberalisation and openness.