chapter 13 theoretical questions

Question 1

how can globalization and international economic integration be measured?

Answer 1

(1) trade flows
(2) factor movements
(3) convergence of prices (goods, factors, and assets)

Question 2

What does the trade-to-GDP ratio measure?

Does a low value indicate that a country is closed to trade with the outside world?

Answer 2

The trade-to-GDP ratio is a measure of the relative importance of trade to a national economy. It is measured by the ratio of exports plus imports to GDP.

A relatively small ratio does not necessarily mean that an economy is intentionally closed to the outside world. Large countries like the United States have large domestic markets that enable firms to specialize and produce in volume in order to attain an optimal scale.

Specialization and high volume in manufacturing is often associated with increased productivity, so firms in large markets can achieve the highest possible level of productivity without having to sell to foreign markets

Firms located in smaller countries have to trade their output across international boundaries if they want to have the same technology and the same level of productivity

Consequently, large countries tend to have lower trade-to-GDP ratios regardless of their trade policies

Question 3

Trade and capital flows were described and measured in relative rather than absolute terms.

Explain the difference.

Which term seems more valid—relative or absolute? Why?

Answer 3

Absolute values are the dollar amounts of trade and capital flows. Relative values are the ratio of dollar values to GDP

Relative values are a better indicator of the importance of trade and capital flows since they are proportional to the size of national economies

Large economies like the United States may have large export and import values, but the importance of trade to the national economy is not nearly as great as it is for other economies

The United States is a large exporter and importer, but the national economy is so large that trade is much less important for the United States than it is for many smaller countries such as Canada, Belgium, or The Netherlands

Question 4

What are the new issues in international trade and investment?

In what sense do they expose national economies to outside influences?

Answer 4

The new issues involve policy differences between nations that until recently were considered the exclusive responsibility of local or national governments

Examples include labor standards, environmental standards, competition or antitrust policies, and industrial support policies

Negotiations between nations potentially give foreign interests a voice in setting domestic policy

The scope and the depth of the negotiations determine how great a voice foreigners will have. It is often the case, however, that negotiations either occur or are proposed because some aspect of domestic policy is perceived by foreigners as a barrier to trade, and they seek to alter the domestic policy that created it