International Trade And European Integration
...distributed. Some sectors perform - and have developed - better than others. Some have concentrated spatially to a greater extent than others. Yet this uneven development has been the basis for Ireland's recent economic growth. The causes of this unbalanced industrial development include a complex interplay of historical, cultural and institutional factors in addition to traditional comparative advantage. All of these forces operate in the context of an increasingly integrated Europe.
Ireland's economy can be characterised as one which is small and open. A large percentage of Ireland's economic activity takes place in the international sector, through exports and imports. In this paper we will examine different schools of trade theory and their respective explanations of differential industrial development between countries and regions. We will examine to what extent these theories can describe Irish experience to date. We will conclude by drawing out the implications for Irish trade and industrial policy in the future. In general what we show is that ‘lumpiness’ in the spatial concentration of industry is consistent both with the theories of international trade and the theories of industrial development.
II. Comparative Advantage
According to the traditional Ricardian comparative advantage theory of international trade, countries will specialise in the production and export of those goods in which they have a comparative advantage. Even if Country A can produce, say, both cars and refrigerators better than Country B, as long as A is relatively better (cheaper, more efficient) at producing cars, then A will produce cars and export them to B, and B will produce refrigerators and export them to A. What follows from this is an expectation that when barriers to trade are removed, there will be inter-industry specialisation; the countries involved will begin...
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