A Review On New Classical Trade Theory

New classical economics is an emerging school of economics since 1980s. With a new analytical framework, new classical economics gives answers to major questions of trade theory. It is the latest development of trade theory. The thesis is a review on new classical trade theory, including the following five parts. Partâ… introduces the basic framework and approach of new classical economics and its latest development. New classical economics succeeds in surfacing the thought of division of labor and resurrecting the spirit of classical economics in the form of new models. It argues that the main problem of economics is to solve the tradeoff at two levels, one of which, studied by classical economics, is between the productivity of division of labor and transaction efficiency, another of which, studied by neoclassical economics, is in allocating resources. One highlight of new classical economics is that it discards the neoclassical assumption of dichotomy between consumer and producer and instead assumes the unity of consumer and producer. The basic study approach of new classical economics is inframarginal analysis. Within the new framework, "equilibrium"is different from that one in neoclassical economics. New classical economics is continuous as well as innovative in economics. Part â…¡r estates the contents of conventional trade theories and their relationships. New classical trade theory rethinks the relationship between absolute advantage and comparative advantage. Absolute advantage is endogenous while comparative advantage is exogenous. As endogenous advantage, absolute advantage is general, not special. Smith's theory and new trade theory deal with the endogenous advantage and Ricardo's theory and neoclassical trade theory with exogenous advantage. Part â…¢provides the visual model of new classical trade theory. The consumer-producer balances the productivity benefit and the transaction cost of division of labor and decides the individuals' levels of specialization. With the improvement of transaction efficiency, the general equilibrium of the economy discontinuously jumps from autarky to the partial division of labor and to the complete division of labor. The model describes the evolution of division of labor. During the process, division of labor and exchange concur. The contents of new classical trade theory are as follows: 1,The reason of trade lies in the endogenous advantage with the division of labor and specialization; 2,The result of trade is to improve the intensity of production, the extent of commercialization, the variety of economic structure, the extent of market integration and increase the number of goods; 3,The domestic trade evolves to international trade because of the consumer-producer's tradeoff and decision;4,It endogenizes trade policy regime. As transaction efficiency is improved, the general equilibrium discontinuously jumps from autarky to the partial division of labor where the country with lower transaction efficiency would impose a tariff and the country with higher transaction efficiency would prefer unilateral free trade and then to the complete division of labor where...