economics
Econ 370-Fall 20
Review for the First Exam
The Integrated World
A shift from a world with isolated non-intervening countries to one where countries are integrated in terms of economics, politics, technology and culture
Economic integration through different flows
The process of economic integration as economic globalization
Different waves of Globalization
Drivers of Globalization in each different phase
Compositional changes in goods flows over the phases of globalization
Changes in investment flows over different phases of globalization
Changes in labor flows over different phases of globalization
Index of globalization-openness index
US and openness index
Benefits of globalization
Critics of Globalization
The International Institutions
The reasons behind the birth of the institutions
Specific Purpose and structure of different international institutions
The IMF
The World Bank
GATT/WTO
Different Rounds of Trade Talks
Importance of the Uruguay Round
Doha Round
Critiques of the international institutions
Inappropriateness of policies
Decision made by industrialized countries with higher share of votes
Loss of sovereignty
RTAs
RTA vs. WTO Philosophy
WTOs support for RTAs
Trade Creation vs. Trade Diversion
Levels of Integration
Preferential or Partial Trade Agreement
Free Trade Areas
Customs Union
Common Markets
Economic Union
The Classical Explanations of Trade
Mercantilism- philosophy, policy, result
Absolute Advantage-concept, computation, recommendation, result
Comparative Advantage- why superior?
Ricardian Model and Comparative Advantage-
opportunity cost,
computation of opportunity cost
trade direction
International trade price
gains from trade- countries consume beyond their Production Possibility Frontier.
Evolved production pattern based on comparative advantage
New worldwide production network and gains of emerging countries
New worldwide production network and concerns of developed countries
Factor Endowment as source of comparative advantage
Relative Factor Abundance
Relative Factor Scarcity
Extension from Ricardo Model
Introduction of different factors- Labor and capital
Assumption of different technology between different sectors of production
One sector is capital intensive-requires more capital per unit of labor
One sector is labor intensive-requires more labor per unit of capital
Absence of Constant cost of production
Increasing cost of production
Complete Specialization does not happen
Recommendation:
Export product produced with intensive use of abundant factor
Import products produced with intensive use of scarce factor
Trade over the years will cause Factor price equalization between the trading countries
Other names of H-O Theory:
Factor Proportion Theory
Factor Price Equalization Theory
Stolper-Samuelson Extension:
Income Distribution reflected from H-O theory
Income of abundant factors increases with trade
Income of scarce factors decreases with trade
Note: All problems done in class notes and assigned for homework must be reviewed.
