International Trade and Internal Organization

Informal discussions on international trade attribute much importance to organizational differences. Nevertheless, economic theories of international trade have not been extended to incorporate this important element. This paper integrates theories of internal organization with a model of international trade by adding another dimension --- how decisions regarding which ideas or projects to accept are made --- to the standard trade framework. It is shown that asymmetry in the organization of economies per se can be a source of comparative advantage and two-way trade. Implications for the pattern of trade are derived. Keyword(s): Internal organization, Polyarchy, Hierarchy, Comparative advantage