IR 292 February 11th
IR 292 February 11th IR 292
Popular in Fundamental International Economics
Popular in INTERNATIONAL RELATIONS
This 3 page Class Notes was uploaded by Maritt Nowak on Tuesday February 23, 2016. The Class Notes belongs to IR 292 at Boston University taught by James Baldwin in Spring 2016. Since its upload, it has received 31 views. For similar materials see Fundamental International Economics in INTERNATIONAL RELATIONS at Boston University.
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Date Created: 02/23/16
IR 292: Chapter 4 (2/11) The StolperSamuelson Theorem: price increase raises the income earned by factors (predicts who wins) Specific Factors Model HO model assumes that factors are mobile and could move from sector to another The Specific Factors model assumes that land and capital are not mobile a country’s endowment of a factor plays more critical roles than in the HO model open trade increases incomes for owners of the factor income distribution effect on labor is indeterminate since workers can easily move to the expanding sector What happens when natural resources create comparative advantage? “resource curse” nondiverse economy bigger impact from booms and bust political issues corruption, authoritarianism, totalitarianism stronger institutions are required Empirical Tests of the Theory of Comparative Advantage HO and Ricardian models are the two most accepted hard to test, so debated a lot tests are based on factor endowments; difficult; How do you measure factor endowments or prices in an autarky? Economic Consensus endowments matter BUT not the whole story lots of countries have advantageous factor endowments but remain poor (SubSaharan Africa has a lot of resource wealth, but the countries are extremely impoverished) Other forces that shape trade patterns HO model is much more realistic other factors impact trade flows differences in technology economies of scale internal: increase in firm size decreases costs external: increase in industry size decreases costs (specialized infrastructure, specialized knowledge and skill sets, less R&D costs, specialized inputs) corporate structures economic policies Extension of the HO model: The Product Cycle product cycle developed by Raymond Vernon evolution of manufacturing and technology Production of a good is cyclical in early stages of production, manufacturers need to be near a highincome market where feedback is easier to obtain production is highly interactive in tech consumer feedback is critical for market success The End of the First Phase experimentation with new designs begins to wane development shifts toward improvements Product Cycle (2nd/Middle Phase) product is standardized regarding production and its basic attributes intense consumer feedback is no longer necessary no longer requires advanced manufacturing technology and techniques 3rd Phase/Late Phase common product consumed on a mass scale more is bought in developed countries, but not made in developed countries In Summation high income countries are “innovation economies” new products R&D middle income countries with mixed endowments make standardized but possibly changing things (in small ways) lower income countries make the stuff that doesn’t vary because they are labor abundant but capital deficient What does it mean? high income: innovate or die middle income: move up or down (up is rare, the “middle income trap”) low income: learn by doing or you’re stuck (poverty trap) Not everyone gets to be the innovation economy someone needs to make the stuff! you can’t eat megabytes you can’t build a house with data Foreign Trade v. Foreign Investment in the product cycle, firms invest abroad instead of exporting (offshoring, “going international”) some output may be imported back into the home country (intraindustry trade) very different from simple HO model where countries export one good and import another Intrafirm trade intrafirm trade—international trade between a parent company and a foreign affiliate difficult to measure Reasons market access, NOT factor prices taking advantage of crosscountry differences in input price reduction of distribution costs in a foreign market growing in importance (mid 90s: 1/3 of U.S. exports and 2/5 of imports)