GIT Flashcards
Topic 1
How do economists view globalisation?
refers to increasing integration of economies around the world, particularly through trade and financial flows. Sometimes also refers to flows of labour and knowledge (IMF, 2000)
Topic 1
when was the first and second waves of globalisation?
first: 1820 - 1914
second: 1960 - ?
Topic 1
give five facts about world trade (WT)
- since 1960 WT has become a much larger part of the economy,
- almost 60% of WT is manufacturing goods
- countries depending on metal/mineral exports typically quite poor, exceptions - Chile, Copper, richest country in Latin America. - International supply chains boost trade - due to product fragmentation
- 90% of WT is done by sea
- technology has greatly reduced trade costs - shipping containers.
Topic 1
What is the gravity model?
the size (GDP) and distance determine bilateral trade across countries.
Gravity law: holding constant the product of two countries’ sizes, their bilateral trade will, on average, be inversely proportional to the distance between them.
theres also the death of distance (a book) is it no longer an issue..?
Topic 1
what is the border effect?
trade between countries is harder than trade between regions within a country. Economists have coined how harder it is “the border effect” as it involves crossing international borders. border effect is the empirical regularity that trade is much higher within countries than across country borders.
Topic 1
why do borders reduce trade?
tariffs, admin barriers, currency exchange, cultural barriers. Border effect can also be thought of as home bias i.e. a preference for home goods over foreign ones.
a border effect of 10 suggests a country exports 10 times more to itself than to a foreign country of a similar size and distance.
Topic 2
What doe the Ricardian model do?
Gives explanation to why countries would trade, presents CA as source of gain from trade, countries gain from trade because they are different.
Topic 2
what is opportunity cost?
whoever has the lowest opportunity cost should specialise you might be able to make it cheaper/faster than someone else but if you can make more money elsewhere then you should. Where the dominance is biggest you should specialise
Topic 2
why should countries specialise?
countries gain from trade if the specialise in their CA. That is because specialisation and trade expand consumption possibilities.
Every country has a CA
Topic 2
What was the Jeffersonian embargo?
during the Napoleon wars (approx 1805). France and Britain tried to cut each other off from international trade. US suffered as British Navy seizing US merchant ships. US pres Thomas Jefferson, declared complete ban on overseas shipping (hoping it would hurt britain more than US) - real income dropped 8% due to embargo.
Topic 2
Explain the Gaza blockade
Gaza strip close to becoming autarkic as result go Israeli and Egyptian blockade that was imposed 2007-2010 - resulted in welfare loss around 14-27%.
Natural experiments where countries switch from free trade to autarky help to quantify gains from trade.
Topic 2
just because you are better at everything doesn’t mean you should do everything
NA
Topic 2
What did Ricardo Hausmann say about David Ricardos theory?
disagrees - “countries do not specialise they diversify” specialisation at the individual level leads to diversification at higher level.
Topic 2
explain idea behind Iowa car crop
Friedman suggests there are 2 technologies for producing cars in the US 1. Manufacture them in Detroit. 2. Grow them in Iowa. - trade the wheat for cars
Topic 2
Explain trade as technological progress
If by trading we can obtain the same quantity of a good by working less, trade can be thought of as technology. e.g. sawmill, barge, you wouldn’t not use them to give someone a job - Henry Martyn
Topic 2
Chang - all major developed countries used interventionist economic policies to promote growth and industrialisation.
NA
Topic 2
explain Suez Canal
the closure meant 79 pairs of countries with a distance increase of over 50%. For these pairs, the closure cause on average a fall in trade of over 20% with a 3-4 year adjustment period. A 10% decrease in ocean distance results in a 5% increase in trade.
Results provide clear evidence that lowering trade barriers leads to higher trade volumes and higher incomes.
Topic 3
Explain Japans rice policy
to export $100 of rice to Japan you would have to pay $778 in tariff duties - scarce land means it is more expensive to produce in Japan than elsewhere but Japanese farmers would be hurt. They could change to work in a Toyota factory but this is costly and inconvenient - special skills developed would be useless here. Short run farmers can’t move to factory.
Topic 3
Explain the specific factor model
vats to brew beer and stamping presses to build auto bodies are specific capital - int he short run you can’t use one to make the other, they are specific. Trade benefits the factor that is specific to the export sector (whose relative prices are increasing) but hurts the factor that is specific to import competing sectors e.g. rice farmers.
Topic 3
Those who gain from trade could compensate those who lose e.g. government could tax Toyota by making them give a free car to unemployed rice farmers.
NA
Topic 3
Trade and unemployment
trade shifts jobs from import competing to export sectors. Process not instantaneous - some will be unemployed as they look of new jobs. 1996-2008 only about 2.5% of involuntary displacement stemmed form import competition/ plants moving abroad.
Topic 3
Trade and unemployment: how has competition from china affected America?
“sudden exposure to foreign competition can depress wages and employment for at least a decade”
Competition from Chinese imports explains 44% of decrease in employment in manufacturing in America 1990 - 2007. Goats usually provide safety net of income support.
Topic 3
Other side: China
Gain to China opening up has been enormous, average real income has risen 4% of American level in 1990 to 25% today. hundreds of millions have moved out of poverty.
Topic 3
what must a realistic view of trade take into account>
must allow for differences in factors of production such as land, capital and natural resources. e.g. Heckscher-Ohlin model: US exports orange juice to Canada not because they’re really productive at it but because they have the good weather for it.
Topic 3
explain the HO theory
emphasises resource differences as the only source of trade, shows that CA is influenced by: relative factors abundance (countries) relative factor intensity (goods). An economy will be relatively effective at producing goods that are relatively intensive in the factor it is relatively well endowed in.
Topic 3
Explain the Stolper-Samuelson theorum
if the relative price of a good increases, then the wage of the factor used intensively i that good increase, while the return to the other factor decreases
