Openness and Economic growth

Question 1

what are the key questions of openess and economic growth lecture

Answer 1

1. Causes of rising economic intergation
   2.does being open to world negative?
   3.channels through which openness affects economic growth
   4.why are some opposed to openess

Question 2

Define autarky and openess

Answer 2

autarky is a country that doenst interact economically
openss inovles international trade and factor flows

Question 3

What was the history of world trade and globalization waves

Answer 3

1. first wave mid 1800-194
   2.retreat, 1914-1950 world wars
   3.1950s 2nd wave-trade,investment surge via trade agreements and new technologies

Question 4

what are the main drivers of globalization

Answer 4

lower transport costs
cheaper communication
improved information flow
trade policy liberalization (WTO for example, more trade deals, 40% tariffs world world 2, 6% in 2000)

Question 5

what was the casual link between openess and income?

Answer 5

Frankle&Romeer said 1% increase in trade to GDP ratio saw incomes go from 0.5 to 2%
Fegrer 2009-Suez canal closure saw trade drop and incomes drop

Question 6

what are the 2 channels of growth in which openness has an affect

Answer 6

Capital accumulation and productivity gains

Question 7

how does openess affect growth through capital accumulation?

Answer 7

openess can increase growth via capital accumulation by:

international flows of investment via FDI, portfolio investment, government grants, lending from banks, all boosting capital stock.
In a closed economy, assumed in Solow, S=I, but in open economy S doesn’t equal I. In an open economy people can invest abroad, low saving countries can receive foreign capital. Resulting in a GDP rise for low saving countries, not in high saving country though, although GNP rises in both.

Question 8

What is the downfall of capital accumulation affecting growth

Answer 8

emperical evidence doesnt really support this claim.

1. Feldstein-Horioka puzzle: savings and investment highly correlated, capital not as mobile as predicted

2.Lucas Paradox: capital doesn’t flow from rich to poor countries, despite higher returns in capital scare nations. This is due to political risk, uncertinity, and weak institutions.

Result: capital doesn’t flow to poor countries, investment channel weaker then expected

Question 9

How does openness affect growth through productivity improvements?

Answer 9

Trade allows countries to specilize based on comparative advantage, CA leads to increasing returns via specialization, larger markets, and more efficiency. Competition forces improvements in efficiency, weakens monopolies that cause resource misallocation.

Example: US car quality saw improvements following influx of Japenese car imports in the 1980s
Canadian manufactors saw productivity boosts following 1989 US-Canada trade agreement.

Question 10

What is the mechanism of technology transfer

Answer 10

This occurs through FDI, high-tech imports, idea imports, and innovative organizational techniques.

Evidence:

1. Povenkik(2007) trade liberalization in Chilean firms led to productivity gains
2. Bloom(2016) competition from Chinese imports boosted innovation and reallocated resources to more productive EU firms.

Albeit, despite benefits, opposition to openness persists

Question 11

What is the opposition to openness?

Answer 11

The key point is that there are losers to trade, gains are widespread but often small per person, while losers are concentrated and large for specific groups.

Workers with comparative disadvantage suffer, and the reallocation of factors of production is costly

Openness reduces monopoly power, lowers the return on capital if capital was scarce beforehand, and harms low-skilled workers in advanced economies.