Introduction

Western specialists hold sharply divergent views on whether Soviet international trade is economically rationa. This chapter attempts to advance the position developed in my previous studies that comparative advantage explains the pattern of Soviet foreign trade better than alternative hypotheses. Acknowledging all the bureaucratic impediments that constrain Soviet foreign trade planning, acknowledging that Soviet prices are not general equilibrium prices and that efficiency indices do not substantially remedy their deficiencies, it is nonetheless argued that Soviet foreign trade is determined by its “fundamental comparative advantage.” The term “fundamental comparative advantage” implies that comparative advantage holds in a delimited sense. It suggests that for a set of basic industries at a high level of aggregation, production costs are sufficiently differentiated to permit various sectors to be grouped into high and low domestic cost categories, which can be utilized to compute gains or losses from foreign trade.

Fundamental comparative advantage does not imply that individual commodities within any particular sector will be properly valued or exchanged according to the norms of general equilibrium. Similarly, fundamental comparative advantage does not imply that composite goods will be traded in optimal volumes and proportions. All that it stipulates is that low-cost goods for the basic aggregates will be exported and high-cost goods imported, and that when opportunity costs change, the pattern of tradeables will adjust appropriately.

This amounts to the assertion that the first-order partial derivatives of aggregate sectoral tradeables with respect to price are positive and the second-order partials are negative, as theory requires, without further presumption as to global properties or full general equilibrium optimality.