Free trade and nation-states : imperfections in the global economy

This paper discusses several topics relating free trade to the concept of the nation state. Classical political economy, and later economics, developed without acknowledging any theoretical role for the nation state, which is basically considered as a distortion. Despite expressions of dissent from a few major economists, like Schumpeter, and the special case of Keynesianism, the issue has never been completely resolved. However, in many circumstances, and contrary to the standard approach, the nation state plays a key active role in the evolution of international flows, and should be theoretically incorporated. The present paper attempts to reintroduce this concept into the analysis, taking into account not only its more obvious features, i.e., the existing countries and governments, but also some other underlying factors of the nation state such as language, history and currencies, which are often neglected, even in the literature on complements and “exceptions” to free trade. In so doing, various imperfections become evident and consequently, the outcomes of free trade may be different to what is assumed in the standard analysis, while a more realistic picture of the world economy emerges. Although some research work has been carried out on this subject, particularly since the 1980s, much remains to be done in order to include these elements fully into the theoretical analyses