Panel Discussion Inherent Conflict Trade in International

I should like to address the impact of economic development in technically backward countries on economic welfare in the industrialized nations, a topic of great concern to many policy makers. As countries that have been underdeveloped improve their industrial capabilities, they can become significant contributors to the total world economy. From a purely national perspective, however, their industries also are new competitors to existing national industries. What is the net effect of this change on the already industrialized countries? It seems natural to take the classical Ricardo model of international trade and see if it has something to say about this question. William Baumol and I have done this in two recent papers (Gomory and Baumol 1995a, 1995b), summarized briefly here. We find that the model points clearly to the possibility of conflict in the interests of the trading partners. Outcomes that are very good for one country may not be good for its trading partner, and the strengthening of one country often will come at the expense of the welfare of the other.