Growth And Trade Flashcards
Rybczynski theorem
In a 2 good world, growth in endowment of 1 factor of production with other factor unchanged leads to an increase in the output of the good that uses the growing factor intensively and a decrease in the other good.
Dutch disease
New production of natural resources results in a decline in production of manufactured products.
Growth biased to replacing imports in a small country
Country gains from growth by reaching a higher IC tangent to C3. But this country is a price taker so has no impact on international price ratio and its own TOT.
Growth biased to replacing imports in a large country
Country can now supply more of its imports by itself. Demand for cloth decreases internationally. If decrease in country’s willingness to trade influences international price ratio then the international price of cloth decreases. Slope of price line at C6 becomes flatter.
Growth biased to replacing exports in a small country
Country gains from growth by reaching higher IC tangent to C4, price taker rules.
Growth biased to replacing exports in a large country.
Country can now supply less of import good by itself. D for cloth internationally increases. If increase in country’s willingness to trade influences international PR, international price of cloth increases. Slope of P line at C7 becomes steeper.
Immiserising growth
Growth that produces large decline in country’s TOT leading to a deterioration of national welfare. It can happen when strongly biased growth towards export, foreign D must be price in elastic, country is heavily engaged in trade before the change.
