Markets for Managers: A Managerial Economics Primer

CHAPTER 10 International Economics

‘Free trade will be the link to bind

    Each nation to the other;

'Twill harmonize the rights of man

    With every fellow brother.’

—Origin unknown¹

Joško Joras lives near the Dragonja River, close to the border between Slovenia and Croatia. His mother was Slovenian and spent several years in a Nazi concentration camp during the occupation of Yugoslavia.² He has lived in the house for over 40 years, and considers it part of Slovenia. But one day he went to buy a washing machine, and became the centre of an international diplomatic stand-off.

According to Croatia, Joško's house is within their territory, and Croat customs officials wanted him to pay import duties. Joško refused. He decided to use a gravel track between the Slovenian and Croatian border to get home, until the Croatian border police tried to block it off. He responded by erecting a Slovenian flag from his balcony and a large sign that reads, ‘This is Slovenia’ on the side of his house.

Why does this all matter? How important are national borders? Few topics in economics create as much consternation and debate as trade theory. Whilst economists tend to view the globalisation of exchange as being essentially benign and welfare enhancing, the public often see it as a dangerous threat.³ This is because from an economic point of view national borders are completely arbitrary. If prosperity stems from the extent of the market and the division of labour, you want it spread over ...