Trade industrilzation and globalization Flashcards
(7 cards)
Define Globalization and its context.
Globalization is defined as increasing interconnectness in goods services, people and ideas. The context is that developed nations are retreating from globalization due to populsim, trade wars, supply chain disruptions, bad for poor countries
What is meant by basic trade theory, any downfalls?
Basic trade theory includes Ricardian comparative advantage, with the core idea being that countries should specialize in their comparative advantage, production with lower opportunity costs.
Gains although can be unequally divided, like China shock on US workers, the major limitation is that basic trade theory is a static model, comparative advantage ignores industry dynamics and growth, just sees trade equaling higher output.
What is the Hecksher-Ohlin model?
The Hecksher model says countries factor endowments lead to their comparative advantage, labor abundant countries(poor) produce labor intensive goods and rich capital abundant countries produce capital goods.
Stolpher Samulson says post trade, wages should rise in poor labor abundant countries yet we don’t see that via the data.
What are the 3 dynamic trade issues?
Unlike Ricardos static model, dynamic looks in more detail. Raises question for industrial policy
- Trade enables specialization, expands market size via economies of scale
2.Trade transmits ideas, exposure to foreign knowledge and technology boosts productivity
3.Export composition-goods have different earning opportunities, rich goods produce goods like tech/manufacturing ones with high income elasticiites, while poor countries often export low income elasticity goods like grain.
What is the Prebich model and its chain of logic?
Poor countries face a long term disadvantage in global trade due to types of goods sold and exported. Imports grow faster than exports, leading to a trade deficit, current account deficit will eventually force devaluation/financing(surplus in capital account).
The logic is as follows,
1. Poor countries export primary goods, rich countries export industry goods
2. global incomes rise, demand for industry goods rise will primary goods drop
3. creates trade imbalnce for poor countries
4. to finance imports, poor countries must borrow or devalue currency
Result-cant grow faster without capital goods, must export enough to pay for them, growth ceiling
What is Thirwalls law
A countrys growth rate is limited by its ability to pay for its imports with its export earnings. Gp=Gr times Ea/ei
Countries can grow faster and avoid deficits by aligning growth income elasticities, by exporting higher income elasticity goods, and restricting import dependency.
What is the role for industrial policy? motivations and risks?
Industrial policy needed to help shfit countries into industries with high learning opportunities and high demand growth, i.e escape Prebich trap
Some common types include intellectual property rights, infant industry, FDI/subsidy policies,finance allocation.
Risks include the government failure,distorted incentives(subsidy race),picking winners
