Friday, January 18, 2008

Compensating the losers fo Free Trade agreements...

When international trade opens up, there are inevitably winners and losers. Inefficient domestic producers can no longer compete with efficient foreign producers, and end up closing shop. A common refrain from the anti-globalisation lobby is that this alone is a sufficient reason to resist free trade.

Economists don't generally buy this story, because it inevitably results in less efficient use of resources: the ineifficient domestic producers continue their inefficient production. They may instead favour compensating the domestic producers for their financial loss.

But does that make sense? As Steve Landsburg argues (quoted by the Undercover Economist reports), we don't compensate inefficient losers in other economic spheres, so why should we when it comes to international trade? Read more here.

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