1、Chapter 7,Growth and Trade,Whats the sources of long-run economic growth? Balanced versus biased growth Growth in only one factor Changes in the countrys willingness to trade Effects on the countrys term of trade Technology and trade,Economic growth expansion over time in the capabilities of an econ
2、omy to produce goods and services.,Whats the sources of long-run economic growth? Increase in countries endowments of production factors Improvements in production technologies,Balanced versus biased growth Balanced growththe ppc shifts out proportionally so that its relative shape is the same Biase
3、d growth economic growth that favors producing relatively more of one of the products, so that the relative shape of the new production possibility curves skews toward the faster- growing product. What can cause biased growth? From factors From technologies,Figure 7.1 Balanced and Biased Growth,How
4、about the change of trade triangle in three figures?,Growth in only one factor Rybczynski theorem: (1) an increase in the output quantity of the product that uses the growing factor intensively, and (2) a decrease in the output quantity of the other product.,Figure 7.2 Single-Factor Growth: The Rybc
5、zynski Theorem,Changes in the countrys willingness to trade What happen of the size of trade triangle in figure 6.1 when the consumption of wheat decrease? What happen of the size of trade triangle in figure 6.1 when the consumption of wheat increase?,Effects on the countrys term of trade Small coun
6、tryA country whose trade (or realistic changes in its trade) does not affect international product price large countrya country whose trade (or realistic changes in its trade) affects international product price,Small country Is it a small country or big country in Figure 6.1?,Large country Case 1:
7、the reduction in the countrys demand for imports. See figure 6.3 How about term of trade in case 1? Improve or deteriorate? Term of trade improves,Figure 7.3 Growth Biased Toward Replacing Imports in a Large Country,Large country Case 2: the increase in the countrys demand for imports. Growth in the
8、 countrys ability to produce its export goods Immiserizing growth (figure 6.4),Immiserizing growth Definition: national economic growth that, by expanding the countrys willingness to trade, causes such large decline in the countrys terms of trade that the country is worse for growing. Figure 6.4 Cas
9、e :Dutch disease and deindustrialization What conditions for immiserizing growth happen?,Three conditions for Immiserizing growth to happen The countrys growth must be strongly biased toward expanding the countrys supply of exports and the increase in export supply must be large enough to have a not
10、iceable impact on world prices The foreign demand for the countrys exports must be price inelastic so that an expansion in the countrys export supply leads to a large drop in the international price of the export product Before the growth, the country must be heavily engaged in trade so that the wel
11、fare loss from the decline the terms of trade is great enough to offset the gains from being able to produce more.,Figure 7.4 Immiserizing Growth in a Large Country,exercise,According to the Ryb theorem, an increase in the countrys labor force will result in an increase in the quantity produced of t
12、he labor-intensive good, with no change in the quantity produced of the other good.” do you agree or disagree? A country whose trade has almost no impact on world prices is at great risk of immiserizing growth.” do you agree or disagree?,exercise,If a country exhibits balanced growth, the production
13、 possibilities curve will: shift out on the x axis. shift out on the y axis shift out on both axes equally not shift. If a countrys endowment of labor increases and cloth production is relatively more labor-intensive than corn production, then according to the Rybczynski theorem, the production poss
14、ibilities curve will shift outward along: the cloth axis the corn axis both axes. neither axis,Technology and trade R&D Diffusion the spread of technologies internationally, from the countries that invent or first use the technologies to other countries that can also use the technologies Product cyc
15、leA theory that there is a regular pattern to production locations and international trade patterns for a product after it is invented. The product is invented and first produced in an industrialized country, so at first these countries export the product. Over time, production shifts to other indus
16、trialized countries and then to developing countries, so the identity of the major exporting countries also changes.,True or false The product cycle hypothesis states that the location of production of a product is likely to move from developed countries to less developed countries as the product moves from introduction to maturity to standardization.If economic growth results in a large country becoming more willing to export, the relative price of the countrys export good increases.,Openness to trade affects growth How openness affects countrys growth?,
