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C H A P T E R 7 Measuring How Closely the Trade Patterns of Socialist and Capitalist Economies Fit Standard Trade Models All happy families are like one another; each unhappy family is unhappy in its own way. —Leo Tolstoy, Anna Karenina I his chapter presents estimates of the degree to which the trade patterns of capitalist and socialist countries fit standard models of trade. The econometric groundwork for the calculation of these estimates has already been presented in Section 5.5. Here the emphasis is on economic interpretation. If the statistical results from neoclassical models show that the trade patterns of MEs and CPEs are very similar, in that they both fit the same model, how might one construe the results? Two possibilities are outlined in Section 7.1 and given detailed elaboration in Sections 7.4 and 7.5. "Coherency" reflects the notion that the behavior of the socialist economies fits a pattern found when applying some particular theory empirically. In this chapter, coherency measures the degree to which socialist trade behavior conforms to trade patterns found when a neoclassical model is estimated for the market economies. "Static efficiency" extends the notion of coherency and interprets the results as measuring the extent to which an economy's behavior approximates that which optimizes the allocation of resources. The concepts of coherency and static efficiency really represent the weakest and strongest interpretations of the results to be presented. (One could, in fact, find a continuum of interpretations between these two.) The objective in the present chapter is not to argue for one of these interpretations, but rather to present the assumptions that underlie each. Even if one construes the results in the weakest possible manner, they are surprising and very informative . The chapter's empirical results show that the trade structure of CPEs approximates that predicted by Heckscher-Ohlin theory. However, once one applies the product differentiation and economies of scale model, the PE model, the CPEs trade behavior does not fit the pattern found for market Conformity to Trade Models 195 economies. The results for the HO model, describing as it does rational allocations , and the contrast between the results for the two models certainly would not be expected from the traditional analyses of centrally planned economies. The next section begins the chapter's analysis with a brief introduction to the two possible interpretations of the measures of the degree to which trade patterns fit estimated models. That section also examines the relation of the present analysis to previous empirical work. Section 7.2 examines the justification for the construction of the measures, motivating them in a diagrammatic framework. The following section details how the measures were calculated and presents the basic results. Sections 7.4 and 7.5 delve more deeply into the two interpretations of the measures, focusing especially on how one might justify the claim that the measures indicate comparative levels of static efficiency. Section 7.6 considers the robustness of the measures with respect to changes in assumptions. Because the measures produced in this chapter are derived from a methodology that is wholly new, a large proportion of the following pages is devoted to the description and analysis of that methodology. For those who are interested primarily in following the major theme of this book—what the data tell us about the socialist countries—the most important parts of this chapter are Sections 7.1 and 7.3. The concluding section of the chapter relates the results to the major theme of the book—the relative applicability of the Schumpeterian and neoclassical paradigms. 7.1 Possible Interpretations of Measures of How Closely Trade Patterns Fit Standard Trade Models Although there are many claims concerning the differences between socialist and capitalist societies, surprisingly few studies have tested such claims by applying theoretical models in a rigorously comparative empirical framework . One set of studies has made a beginning in examining these claims in such a setting. The typical study in this set estimates a cross-section relationship using a sample of both capitalist and socialist countries. Then, with dummy variables or a similar methodology, there is a test of whether the regression coefficients for the socialist countries are different from those for the rest of the sample.1 Highly informative results can be obtained from such studies. Outstanding examples are contained in Pryor (1973, 1985), Ofer (1973), and Bergson (1987). Often the results of such studies are given strong normative interpretations. Pryor (1973) provides a good...


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