Intro Flashcards
5 facts about world trade
Since 1960 trade is a large part of the world’s economy
Almost 60% of trade is manufactured goods
Fragmented production (international supply chains) boosts trade
90% of trade by sea
Tech reduces costs e.g containerisation
A) What drove trade before globalisation
B) First wave of globalism marked by
C)2nd wave caused by…
A) Colonialisation
B) Rise and fall (due to war) of intra-EU trade
C) Technological advancement (fall in transport/communication costs)
Asia share of world export
36%
Total trade flows proportion that occur between
Developed countries
Developing countries
Developing and developed countries
> 50%
15%
30%
Gravity equation for bilateral trade flows (between country I and J
Tij = α + β(GDPi x GDPj) + yDij + εij
Tij : bilateral trade flows between country I and j
Dij : distance between countries
When is there gravity:
β^ > 0 (i.e trade between the 2 countries increases with GDP)
Y^ < 0 (trade decreases with distance)
What does data suggest using the equation
Trade is proportional to size β^ > 0 (trade is positively linked with GDP)
Trade is inversely proportional to distance y^ < 0
(Further distance = less trade)
Border effect
Trade is much higher WITHIN countries than across country borders
4 reasons for border effect (borders reduce trade)
Tariffs
Administration (documentation)
Currency exchange required
Cultural barriers
Do small countries trade more (share of GNP) or less than large countries?
More
No trade model:
If trade is possible, why may countries not trade? (4)
Identical tech and taste
Same relative factor endowments
Constant RTS
No distortions
Why do countries trade? (3)
Differences in tech
Diff in factor endowments
Imperfect competition
Ricardian’s Comparative advantage
Country exports products in which its labour productivity (relative to other products) is higher than in other countries
Heckscher-Ohlin
Factor endowments - countries should export products that are intensive in the factor that is in abundance within their country
E.g a lot of labour - make labour made products
Leontief paradox contrasted Hechkscher - how?
K/L ratio embodied in US imports exceed the one in exports.
(Contrasts Heckscher model if we believe US are more capital intensive than trading partners, since if they are more k intensive they should export more than import capital goods)
