New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Advanced International Trade Theory and Policy

by: Miss Romaine Grimes

Advanced International Trade Theory and Policy ECON 433

Marketplace > Pennsylvania State University > Economcs > ECON 433 > Advanced International Trade Theory and Policy
Miss Romaine Grimes
Penn State
GPA 3.64


Almost Ready


These notes were just uploaded, and will be ready to view shortly.

Purchase these notes here, or revisit this page.

Either way, we'll remind you when they're ready :)

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

Class Notes
25 ?




Popular in Course

Popular in Economcs

This page Class Notes was uploaded by Miss Romaine Grimes on Sunday November 1, 2015. The Class Notes belongs to ECON 433 at Pennsylvania State University taught by Staff in Fall. Since its upload, it has received 14 views. For similar materials see /class/233104/econ-433-pennsylvania-state-university in Economcs at Pennsylvania State University.

Similar to ECON 433 at Penn State


Reviews for Advanced International Trade Theory and Policy


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 11/01/15
Advanced International Trade Lecture 5 Prof Tybout September 19 2006 Lecture outline A digression Macro in the background The workhorse models an overview A simple Ricardian model A Ricardian model with increasing returns to scale Relevant reading Caves Frankel and Jones chapter 4 Reminder Problem set due Thursday Sept 21 A digression Macro in the background We typically assume balanced trade presuming that countries neither deplete nor build up their foreign exchange reserves This should be a reasonable approximation to long run equilibrium but deviations from this condition occur especially over short time horizons Why Macro in the background Private saving S Y C T National income with no trade Y C l G Hence without trade 8 l G T Savings investment scal deficit Macro in the background When an economy trades some goods and services produced are exported X and some goods and services consumed are imports M so the identity becomes Y Cl G XM Once again substituting into S Y C T we find SClGXM C TlX MT G Private savings private investment current account surplus scal surplus Macro in the background SlX MT G Given savings and investment an increase in the scal de cit lTG must be offset with an increase in the current account de cit 1XM lf investment is falling ll or savings is rising TS less adjustment in the current account de cit is necessary Macro in the background Selected Series from the National Accounts 20 15 M Balance on current a W account 8 10 Net privatesaving 5 5 M E H Fiscal surplus g o A l l l n g iv 55 0V 6 0H Sross private 9 5 9 3 19 19 19 omestlc Investment 10 7 Chronology During the 1990s the US gradually restored scal balance Nonetheless the trade balance began to deteriorate The reason was declining private savings and rising investment Falling investment and stabilizing savings should have pushed the current account back toward balance in the 00 s But beginning in 200001 the scal situation sharply reversed This turnaround re ected tax cuts and to a lesser extent new spending To import more than we export that is to consume more than we produce we must borrow from abroad 80 the current account deficit is matched by capital inflows ie foreigners are nancing the excess consumption of the United States 8 Workhorse trade models Overview Ricardian model Emphasizes interactions between technological differences wages and tra e Also useful for analysis of sectorlevel increasing returns to scale Downplays the role of differences in factor endowments differences in tastes market distortions Workhorse trade models Overview HecksherOhlin model Emphasizes differences in factor endowments relation between factor rewards and trade Useful for the analysis of trade taxes and subsidies Downplays differences in technologies differences in tastes Workhorse trade models Overview Speci c factors model Like HecksherOhlin emphasizes differences in factor endowments but Focuses on instances where different sectors use different factors Thus especially useful for analysis winners and losersshortrun reactions to trade shocks Downplays differences in technologies differences in tastes The Ricardian model Technology Suppose the world is made up oftwo agrarian economies each of which can produce 2 goods pork P and beans B using a single input labor L and constant returns production technologies Tastes As in earlier lectures assume identical homothetic tastes The Ricardian model Good Workers per unit output Home United States Pork 4 more generally up Beans 8 more generally ab Foreign Canada Pork 2 more generally azi Beans 1 more generally ab The Ricardian model L 40 units oflabor in the US and L 20 units of labor in Canada 61pr0be L40 61pr61be L20 The Ricardian model B United States B Canada 20 5 P 10 P 10 15 The Ricardian model PpPb Autarky equilibrium 12 QpQb The Ricardian model In autarky relative prices simply re ect productivity What purchasing power do workers have in terms of pork In terms of beans The Ricardian model Is there a basis for mutually advantageous trade between Canada and the US Absolute advantage if country A uses fewer resources to produce a unit of a certain good than does country B it has an absolute advantage in the production ofthat good relative to B Comparative Advantage If the opportunity cost of another unit of X in terms of foregone Yis lower in country A than in country B then A has a comparative advantage in X The Ricardian model Consider shifting one unit of pork production from Canada to the US This allows Canada to produce 2 more units of beans The US gives up 12 a unit of beans to produce the extra unit of pork So together the US and Canada are up 2 12 1 2 units of beans Whenever MRTs differ across countries the possibility for mutually beneficial arbitrage is there The Ricardian model PW Trading equilibrium 12 1020 Q1 The Ricardian model Trading equilibrium QB Qp United States Canada QP The Ricardian model When the US and Canada trade what happens to the US wage in terms of the price of pork w 7 1 1 4 P1 ap What happens to the U S wage in terms of beans iiiigtiiii i The Ricardian model Does free trade mean wage equalization w wPpap wa b gtllt w W 0 P w 1 w w 4 p o The higherthe world price of pork and the more productive the US workforce in pork production the better offare US workers The Ricardian model Suppose one country had been very small How would the effects oftrade have been different


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Anthony Lee UC Santa Barbara

"I bought an awesome study guide, which helped me get an A in my Math 34B class this quarter!"

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.