!DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Strict//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-strict.dtd"> Streamline Training & Documentation: The Effect of Trade on Prices

Friday, June 13, 2008

The Effect of Trade on Prices

It is easy to get confused about how freer trade affects prices. People are inclined to say that it will lower prices — absolute prices — whereas the actual impact is on relative prices: Imports become relatively cheaper and exports relatively more expensive. The impact on any particular individual depends on the particular mix of imported and exported goods the individual consumes.

This is explained neatly by Dani Rodrik, a professor of international political economy at Harvard's Kennedy School of Government, in an April 2007 blog post.