International Economics: Gains from Trade, Specialization, and Geography - Prof. Amici, Guías, Proyectos, Investigaciones de Economía

¡Descarga International Economics: Gains from Trade, Specialization, and Geography - Prof. Amici y más Guías, Proyectos, Investigaciones en PDF de Economía solo en Docsity! CHAPTER 1 International Economcis is about how nations interact through: trade of goods and services, flows of money and investment. Gains from trade. • When a buyer and a seller engage in a voluntary transaction, both can be made better off. • Countries use finite resources to produce what they are most productive at (compared to their other production choices), then trade those products for goods and services that they want to consume • Countries can specialize in production, while consuming many goods and services through trade. • Trade benefits countries by allowing them to export goods made with relatively abundant resources and imports goods made with relatively scarce resources. • When countries specialize, they may be more efficient due to larger-scale production. • Countries may also gain by trading current resources for future resources (international borrowing and lending) and due to international migration. Why some countries export certain products can stem from differences in: • Labor productivity • Relative supplies of capital, labor and land and their use in the production of different goods and services Governments measure the value of exports and imports, as well as the value of financial assets that flow into and out of their countries. • Trade deficits, where countries import more than they export in value, may be offset by net inflows of financial assets. • The official settlements balance, or the balance of payments, measures the balance of funds that central banks use for official international payments. CHAPTER 2 Important* The size of an economy is directly related to the volume of imports and exports. Gravity Model Tij = A x Yi x Yj /Dij 1. Distance between markets influences transportation costs and therefore the cost of imports and exports. • Distance may also influence personal contact and communication, which may influence trade. 2. Cultural affinity: if two countries have cultural ties, it is likely that they also have strong economic ties. 3. Geography: ocean harbors and a lack of mountain barriers make transportation and trade easier. 4. Multinational corporations: corporations spread across different nations import and export many goods between their divisions. 5. Borders: crossing borders involves formalities that take time and perhaps monetary costs like tariffs. 1. Developing countries. The world’s poorer nations, many of which were European colonies before World War II. 2. Gravity model. Gravity model of world trade. The reason for the name is the analogy to Newton’s law of gravity: Just as the gravitational attraction between any two objects is proportional to the product of their masses and diminishes with distance, the trade between any two countries is, other things equal, proportional to the product of their GDPs and diminishes with distance. 3. Gross domestic product. Measures the total value of all goods and services produced in an economy. 4. Service offshoring (service outsourcing). Is the change when a service previously done within a country is shifted to a foreign location. 5. Third world. Also called developing countries. 6. Trade agreement. Trade which ensures that most goods shipped among the three countries are not subject to tariffs or other barriers to international trade. CHAPTER 3 1. Absolute advantage. When one country can produce a unit of a good with less labor than another country. 2. Comparative advantage. Advantage in producing a good if the opportunity cost of producing that good in terms of other goods is lower in that country than it is in other countries. 3. Derived demand. Results from the demand for goods produced with each country’s labor. 4. Gains from trade. Countries whose relative labor productivities differ across industries will specialize in the production of different goods, so this mutual gain can be demonstrated in two alternative ways. The first way to show that specialization and trade are beneficial is to think of trade as an indirect method of production. Another way to see the mutual gains from trade is to examine how trade affects each country’s possibilities for consumption. 5. General equilibrium analysis. Takes account of the linkages between the two markets. 6. Nontraded goods. Goods which each country will produce for itself. 7. Opportunity cost. The opportunity cost is the number of a good that could have been produced with the resources used to produce a given number of another one. 8. Partial equilibrium analysis. Is to focus only on supply and demand in a single market. 9. Pauper labor argument. Foreign competition is unfair and hurts other countries when it is based on low wages. Is a particular favorite of labor unions seeking protection from foreign competition. 10. Production possibility frontier. Trade-offs illustrated graphically, which shows the maximum amount of a good that can be produced once the decision has been made to produce any given amount of another good, and vice versa. aLQ + aLQ ≤ L (a is labor required; LQ is total production; L is total amount of resources) 11. Relative demand curve. Is indicated by relative demand. 12. Relative supply curve. Indicated by relative supply. The quantity of a good supplied by all countries relative to the quantity of other good supplied by all countries. RS = (QC + Q*C )/(QW + Q*W) 13. Relative wage. Is the amount they are paid per hour, compared with the amount workers in another country are paid per hour 14. Ricardian model. Approach, in which international trade is solely due to international differences in the productivity of labor (due to differences in technology). Uses opportunity cost and comparative advantage. collective action. While it is in the interests of the group as a whole to press for favorable policies, it is not in any individual’s interest to do so. customs union. Union in which the countries must agree on tariff rates. domestic market failures. Some market in the country is not doing its job right—the labor market is not clearing, the capital market is not allocating resources efficiently, and so on. efficiency case for free trade. Is simply the reverse of the cost-benefit analysis of a tariff. A tariff causes a net loss to the economy measured by the area of the two triangles; it does so by distorting the economic incentives of both producers and consumers. free trade area. Area in which each country’s goods can be shipped to the other without tariffs, but in which the countries set tariffs against the outside world independently. General Agreement on Tariffs and Trade (GATT). The International Monetary Fund and the World Bank (described in the second half of this book). In 1947, unwilling to wait until the ITO was in place, a group of 23 countries began trade negotiations under a provisional set of rules that became known as the General Agreement on Tariffs and Trade, or GATT. international negotiation. Governments agreed to engage in mutual tariff reduction. marginal social benefit. Margin to additional production that is not captured by the producer surplus measure. median voter. The voter who is exactly halfway up the lineup. voters are lined up by their preferred tariff rate. optimum tariff. The tariff rate that maximizes national welfare. used to refer to the tariff justified by a terms of trade argument rather than to the best tariff given all possible considerations. political argument for free trade. Reflects the fact that a political commitment to free trade may be a good idea in practice even though there may be better policies in principle. trade policies in practice are dominated by special-interest politics rather than by consideration of national costs and benefits. preferential trading agreement. Agreements under which the tariffs they apply to each other’s products are lower than the rates on the same goods coming from other countries. Prisoner’s dilemma. Each government, making the best decision for itself, will choose to protect. These choices lead to the outcome in the lower right box of the table. Yet both governments are better off if neither protects: The upper left box of the table yields a payoff that is higher for both countries. By acting unilaterally in what appear to be their best interests, the governments fail to achieve the best outcome possible. If the countries act unilaterally to protect, there is a trade war that leaves both worse off. rent-seeking. Process in which imports are restricted with a quota rather than a tariff, so the cost is sometimes magnified. terms of trade argument for a tariff. In some cases the terms of trade benefits of a tariff outweigh its costs, so there is a terms of trade argument for a tariff. A tariff rate that completely prohibits trade leaves the country worse off than with free trade. theory of the second best. States that a hands-off policy is desirable in any one market only if all other markets are working properly. If they are not, a government intervention that appears to distort incentives in one market may actually increase welfare by offsetting the consequences of market failures elsewhere. trade creation. Increase in economic welfare from joining a free trade area trade diversion. Occurs when tariff agreements cause imports to shift from low-cost countries to higher cost countries. trade round. A large group of countries get together to negotiate a set of tariff reductions and other measures to liberalize trade. trade war. Involves the imposition of tariffs between trading partners. This will almost certainly cause a fall in economic welfare for all the countries who experience higher tariffs and a fall in trade. World Trade Organization (WTO). In 1995, the World Trade Organization, or WTO, was established, finally creating the formal organization envisaged 50 years earlier. CHAPTER 11 CHAPTER 12