International trade

Globalisation postives

growth / jobs / more competition=lower prices / technology / culture

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Globalisation negatives

working conditions / environment / inequality / disease

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2 Reasons why globalisation happened (post WW2)

1) tech advancement 2) liberalisation of trade

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Globalisation positives: case study

China - communist to ADS + FDI / polarised / Guangdong (3 zones)

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Globalisation negatives: case study

Bhutan - traditional isolationists / opened to tourism / migration villages

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International trade: gains

selling G+S always beneficial / comparative adv as countries differ / economies of scale created

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International trade: negatives

create large disparities through wages / LEDC worry about competition / MEDC worry about living standard

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2 ways trade occurs

Resources (capital/ land/ labour) Productivity (how much 1 unit of labour can produce)

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Absolute advantage: Adam Smith

wealth through productivity / competition (specialise and exchange) / export goods with ABSOLUTE advantage / mutually beneficial

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Absolute advantage: definition

country has good with lower unit labour requirement and higher labour productivity than another country

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Comparative advantage: David Ricardo

wealth through productivity / competition / countries trade through COMPARATIVE advantage

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Comparative advantage: definition

country can produce a good at a lower opportunity cost than another country

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Comparative advantage: opportunity cost definition + equation

cost of the taking the next best alternative / lower the opportunity cost of producing that good the better /

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Comparative advantage: Autarky

Country is closed to trade / consumption=production/ goods exported from cheap autarky to expensive autarky

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Nominal price

price of good measured in units of currency

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Relative price

price of good measured in units of another good

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Ricardian model: assumptions

2 countries/ 2 goods/ 1 factor/ fixed resource endowment/ immobile production across countries/ mobile across industries/ tech level fixed but can be different/ constant MC/ full employment/ perfect comp/ no gov. obstacles

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Ricardian model: table

.

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Ricardian model: Production possibility frontier (PPF)

max amount of goods can be produced/ more of one=less of other/

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Ricardian model: PPF equations

.

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Ricardian model: absolute advantage equation

.

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Ricardian model: comparative advantage equation

.

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Ricardian model: common price (P*)

when open to trade/ supply to country their price will dec as supply inc /

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Autarky to Gains from trade: Japan 1858 to 1870

competitive markets/ product homogeneity/ price-taking behaviour/ opened up to manufacturing as lower foreign costs/ real national income inc 65%

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Heckscher-Ohlin theory

trade occurs due to differences in resources/ countries have different relative abundance of factors/ production use factors of production with diff. relative intensity (lab/machine)/ diff. capital-lab ratios

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Heckscher-Ohlin theory explains why...

countries with similar tech still trade/ countries indirectly trade factors contained in production

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Leontief paradox: US capital abundant + lab deficient

US capital-lab imports > capital-labour exports / but US worlds highest capital per worker

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Leontief paradox: US explanation

US labour can't be compared with other countries as US worker works 3x harder on avg

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International trade

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