Introduction to International Trade (KEMENY)

Question 1

Imports

Exports

Answer 1

A transaction whereby a good or service
crosses a national border such it is purchased
from a non-resident

The mirror image: it is an import, but from the
perspective of the sender

Question 2

First principles at individual level

Proposition 1: you want to consume things

Other relevant factors in decision making…

Answer 2

For each thing you a “make” or “buy” decision
• Option 1 – self-sufficiency (“AUTARKY”)
• Option 2 – rely on others (“TRADE”)

– Proposition 2: You have limited time
– Proposition 3: You are good at some things but
not everything
– Proposition 4: Others are good at some things but
not everything – and strengths vary

Question 3

By trading

Answer 3

You take advantage of your strengths, but also

benefit from others’ strengths

Question 4

“Pareto improvement”

Answer 4

you should be able to
make yourself better off without making anyone
worse off

Question 5

The Atlantic Economy vs Today

Similarities

Answer 5

– Aggregate Trade/GDP and Capital Flow/GDP

– Low policy barriers to international transactions

Question 6

The Atlantic Economy vs Today

Differences

Answer 6

– Trade costs decline is different (communication costs)
– Dramatic movement of people in Atlantic Economy
• Cities like New York and Chicago, which were big recipients of migrants from Europe, were as high as 87% foreign-born
– Initial conditions:
• 1870: world is equally poor and agrarian
• 1960: world divided between rich/industrialised countries and poor, primary producers

Question 7

The Atlantic Economy: Outcomes

Answer 7

• Dramatic ‘convergence’ in factor prices and standards of living among traders
– European emigrants strongly improve their lot in the Americas (though US wages decline)
– While European stayers do better than before
– diminished supply (wages rise)
• In general: Backward Americas catch up to Europe

Question 8

The Atlantic Economy: Spurred by what?

Answer 8

Spurred by falling trade costs
– High tariff barriers reduced in Europe
– Imperialism

Question 9

The Atlantic Economy: Linked colonies via?

Answer 9

Linked colonies via “free” trade (sometimes at

gunpoint)

Question 10

The Atlantic Economy: Impact on transport/innovations?

Answer 10

Transport costs (45% decl)
Steamships and railroads
Refrigeration and other innovations

Question 11

The Atlantic Economy: Different kinds of manufacturing

specialisation

Answer 11

– Europe: ‘old’ manufacturing
• textiles, iron, ships

– Americas (esp N.A.): ‘new’ manufacturing
• chemicals, steel, engineering goods

Question 12

The Atlantic Economy: Date

Answer 12

1870-1914