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Abstract
We developed hypothetical basic laws of trade that could reconstruct and refine the theory of international trade. The basic laws could naturally give rise to comparative advantages in every country. The probability that a country has no comparative advantage at all is close to zero. At the international level, the basic laws require a hypothetical true exchange rate (TER) that makes fundamentals and monetary aligned. If the TER requirement is fulfilled, then all countries should have equal comparative advantages, international trade should be relatively balanced, they all could benefit from trading regardless of competitiveness and cost. In this condition, gains from trade are optimal for all nations. To demonstrate the workability of this hypothesis, we make trade simulations 2x2 and 5x20.
Supplementary materials
Title
Comparative advantage and trade simulation 5x20 model
Description
We simulated 5 countries, namely China, South Korea, Indonesia, Turkiye, and India. Each country produces and consumes 20 products, namely A, B, C, D, E, F, G, H, I, J, K, L, M, N, O, P, Q, R, S, and T. The production costs of each product in each country are random with a range in their respective national currencies (China between 60 – 120 Chinese yuan, South Korea between 12,000 – 24,000 Korean Won, Indonesia between 145,000 – 290,000 Indonesian rupiahs, Turkiye between 170 – 340 Turkish lira, and India between 930 – 1860 Indian rupees). We assume that all goods can be traded (tradable) between countries. All countries can trade to get goods at a lower cost and larger market. We use 3 types of exchange rates to compare the results, namely the true exchange rate and misaligned 1 and 2.
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Title
GLOBAL CURRENCY INITIATIVE
Description
We designed a democratic and science-based international monetary system managed by all countries in the world in a decentralized manner.
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