Saturday, December 29, 2007

Questioning Krugman

Probably, this op-ed is what Aco's economist friend meant when he (or she) said about Krugman and fragmentation in trade theory. In that piece, Krugman wrote that on free trade:
"(But) for American workers the story is much less positive. In fact, it’s hard to avoid the conclusion that growing U.S. trade with third world countries reduces the real wages of many and perhaps most workers in this country. And that reality makes the politics of trade very difficult."
Dani Rodrik, as expected, praises this line of argument. But Greg Mankiw and Don Boudreaux are certainly much less impressed with such protectionist flavors.

I'd rather wait more numbers, and perhaps new theory, to appear on academic paper by Krugman himself. Nonetheless, it would be small wonder for me if this early assertion were picked up by protectionists from our side to defend anti free trade stance and hence bark at the wrong tree.

Why? Because the negative impact, if it's plausible, would be borne by workers in rich countries and comes from manufactured goods trade. Indonesia is rather far from being rich country at the moment and is struggling to strive in the said manufactured goods export. The winner is us and more free trade would be even better then. Not the other way around.

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