In his memoirs, Gorden refers to his stay at Oxford as “The Very Best Years” (Gorden 2018: Chapter 13).
Once again, his ‘Patron Saint’ Harry Johnson was instrumental in this move. It was he who first suggested to Corden that he should apply for the Nuffield Readership in International Economics which was due to become vacant shortly on the retirement of Roy Harrod.
Corden was reluctant at first, but spurred on by Dorothy and by Johnson, he submitted an application. Both Johnson and John Hicks were members of the panel for the post and it was duly offered to Corden.Thus began an extremely productive period for Corden who published three major books during his time at Oxford as well as numerous articles. He also had, as we shall see below, a major impact on the graduate teaching of international economics at Oxford.[185] The three books, all published by Oxford University Press, were as follows:
(1) The Theory of Protection, published in 1971;
(2) Trade Policy and Economic Welfare, published in 1974; and
(3) Inflation, Exchange Rates and the World Economy, published in 1977 after Corden had returned to Canberra (considered in Section 4 briefly below).
The Theory of Protection is essentially Gorden’s seminal 1966 paper on effective protection writ large. In it, he takes all of the basic elements of that article and expands them, showing how the ERP fits into a general equilibrium framework. He also treats the many critiques and issues which arose out of the ERP concept. Many of the theoretical critiques of the ERP centred around the so-called substitution problem which arises when one relaxes the assumption of fixed coefficients between the traded inputs and final output. If the underlying production functions are separable, substitution between the traded inputs and labour and capital is unbiased and the concept of value added is meaningful. In this case, Gorden shows that measurement of the ERPs using input coefficients post-protection will have a bias arising from the substitution effects.
The bias will tend to overstate the “real” ERPs. A more fundamental problem arises for the ERP concept if production functions are not separable since in that case it is unclear if value added can be readily defined. While Corden (1987) acknowledges these critiques, he still mounts a defence of the utility of the concept in terms of giving policy makers some guidance as to the direction of possible resource shifts and the costs of protection.The Theory of Protection is the most dense of Gorden’s books. While it contains the Gorden trademark of many diagrams, it also uses a lot of algebra to support its arguments. It remains an essential reference for any economist interested in the theoretical foundations of the ERP and how best to interpret actual measurements.
On the other hand, Trade Policy and Economic Welfare is undoubtedly Gorden’s magnum opus in the field of trade policy. It is very much influenced by Meade’s Trade and Welfare, as the title indicates; it is also imbued by the spirit of Pigou’s classic, The Economics of Welfare1 The expository style is vintage Gorden. The writing is clear, the assumptions are well-defined and the implications of relaxing them explored thoroughly. There are over 60 diagrams in the book, giving full rein to Gorden’s skill with geometry.
Trade Policy and Economic Welfare aims to give a full overview of the normative theory of trade policy. It has a strong political economy flavour as it puts much focus on the income distribution effects of trade policies. In addition to reviewing the standard trade arguments for intervention (terms of trade, infant industry, senescent industry, etc.), it also treats various dynamic aspects of trade policy (some of which foreshadow themes in the endogenous growth [186] literature) and has a novel treatment of the productivity impacts of protection building upon the concept of X-efficiency.[187]
The book is innovative in its treatment of policy interventions in the presence of so-called domestic distortions which arise whenever there is a divergence between marginal private and social costs/benefits.
It carefully traces out what Corden calls a ‘hierarchy of policies' (Corden 1974: 28-31), i.e. interventions to remedy the given distortion in question: policy interventions are ranked in order as first-best, second-best, third-best and so on in terms of the level of welfare attainable. As Corden recognises, this ranking method is not just applicable to trade policies but it can be fully generalised to public policy interventions in all economic fields.A significant innovation in the book is the concept of the ‘conservative social welfare function'. This embodies an explicit distributional goal. As Corden (ibid.: 107) puts it, ‘any significant absolute reductions in real incomes of any significant section of the community should be avoided'. This implies that workers and/or localities which suffer significant real income losses as a result of a public policy intervention should be compensated for these losses. The concept is a precursor to current concerns about “loss aversion” and “fairness”. It should also be pointed out that, while lip service is paid to the compensation principle by many academic economists and policy makers, it is usually the case that compensation does not materialise for the losers or, if it does, it covers only a small portion of their losses. Given the current preoccupations about the negative side effects of globalisation and the apparent willingness of the Trump administration to launch trade wars, it would be timely to give more weight to the conservative social welfare concept and put it into practice.
Trade Policy and Economic Welfare has proved to be the most influential of Corden's books. The first edition remained in print for over 20 years and a revised second edition was issued in 1997. According to Google Scholar, it is the second most cited of Corden's publications, racking up nearly 2,100 citations, nearly twice as many as those recorded for The Theory of Protection.[188]
4.1