1、Chapter 10,International Trade and Economic Growth,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-2,Topics to be Covered,Economic Growth and Development Economic Development Strategies: Primary Export-led Strategy Import-substitution Strategy Outward-looking Strategy Neutral Economic
2、 Growth Protrade vs. Antitrade Biased Growth Types of Technological Change International Flows of Labor and Capital Economic Analysis of Labor Migration,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-3,Economic Growth,An economy is said to grow when its total real output or gross dom
3、estic product (GDP) rises. Per capita GDP is a measure of a countrys standard of living. For standard of living to rise over time, GDP must grow faster than the population.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-4,Economic Development,Economic Developmentrefers to the achieve
4、ment of a quality of life for the average citizen of a country that is comparable to that enjoyed by the average citizen of a country with a modern economy, such as the U.S. Economic development is characterized by: High levels of consumption Broad-based educational achievement Adequate housing Acce
5、ss to high-quality health care, etc. Economic growth is essential for economic development.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-5,Strategies for Economic Development,Primary Export-led Development Strategy Import-Substitution Development Strategy Outward-looking Developmen
6、t Strategy,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-6,Primary Export-Led Development Strategy,This strategy involves policies designed to exploit natural comparative advantage by increasing production of a few export goods most closely related to the countrys resource base. Cou
7、ntry examples include Columbia (coffee), Mexico and Nigeria (petroleum), and Malaysia (rubber).,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-7,Advantages of Primary Export-led Development Strategy,This strategy would encourage more intensive use of existing or abundant resources. I
8、t could help attract foreign investment. It may provide linkage effects or benefits to other industries as a result of one industry expanding.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-8,Arguments Against Primary Export-led Strategy,The world markets for primary products do not
9、grow fast enough to support this type of development. The prices of primary products relative to the prices of manufactured goods will tend to fall over time due to sluggish demand or oversupply.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-9,Terms of Trade of Developing Countries,
10、Refer to Figure 10.1 Terms of trade of oil exporting countries have experienced sharp increases; non-oil exporters have more stable, albeit declining, terms of trade. A group of countries with market power can improve its terms of trade by restricting supply. The declining terms of trade of non-oil
11、exporters is more likely due to policies of other developing countries (i.e., OPEC) than to market conditions in developed countries.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-10,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-11,Import-Substitution Development St
12、rategy,These policies are designed to promote rapid industrialization and development by erecting high barriers to foreign goods to encourage local production.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-12,Arguments Against Import-substitution Strategy,The high barriers to trade
13、rarely come down. This strategy limits the development of industries that supply inputs to the protected industries. Imported capital goods are used extensively in local production. The strategy encourages citizens to spend scarce resources to lobby or bribe government officials to protect their ind
14、ustries.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-13,Outward-Looking Development Strategy,These policies involve government identifying or targeting industries in which the country has potential comparative advantage. Successful country examples include Japan, South Korea, Sing
15、apore, and Taiwan. Refer to Table 10.1 for more examples.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-16,Trade and Growth,Economic growth is shown graphically as an outward shift of the countrys production possibility frontier (PPF). Since growth affects both production and consum
16、ption, then it also affects international trade.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-17,Graphical Analysis: An Economy Before Growth Occurs,Refer to Figure 10.2 Given PPF and terms of trade line, show: Equilibrium production point Equilibrium consumption point PR line with
17、 slope indicating the initial ratio of production of the two goods CR line with slope indicating the ratio in which the two goods are consumed,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-18,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-19,Neutral Economic Growth,A
18、 proportionate increase in all resources and consumption so that trade also expands proportionately to the growth of the economy. After growth, the economy continues to produce and consume the two goods in the same ratios as before growth (refer to Figure 10.2).,Copyright 2007 Pearson Addison-Wesley
19、. All rights reserved.,10-20,Conditions Necessary for Neutral Growth,Graphically, the new production possibility frontier (PPF) must be a proportionate expansion of the old PPF. Consumption of both goods must increase by the same proportion as income increases. In other words, the income elasticity
20、of demand for both goods must be equal (see Table 10.2).,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-21,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-22,Other Types of Growth,Pro-trade Biased Growth Anti-trade Biased Growth,Copyright 2007 Pearson Addison-Wesley. A
21、ll rights reserved.,10-23,Pro-trade Biased Growth,When growth occurs as a result of an increase in the resource used intensively in the production of export goods, then the output of export goods will rise relative to import production, and international trade will expand by more than the rate of gr
22、owth of GDP. This is called pro-trade biased growth (refer to Figure 10.3 and Table 10.3). Graphically, the PR line rotates away from the CR line.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-24,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-25,Copyright 2007 Pearso
23、n Addison-Wesley. All rights reserved.,10-26,Anti-trade Biased Growth,When growth occurs as a result of an increase in the resource used intensively in the production of import goods, then the output of import goods will rise relative to the output of export goods, and the international trade of thi
24、s country will fall. This is anti-trade biased growth (refer to Table 10.4). Graphically, the PR line rotates toward the CR line indicating a tendency toward autarky.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-27,Technological Change,Technological (technical) change occurs when t
25、he same amount of output can be produced with fewer factor inputs, or when the same amount of inputs can produce greater amounts of output.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-28,Types of Technological Change,Neutral technological changean innovation that reduces by an equ
26、i-proportionate amount the quantity of factors required to produce a given level of output. Labor-saving (capital-saving) technological changean innovation that leads to a reduction in the use of labor (capital) relative to other factors in the production of a given level of output.,Copyright 2007 P
27、earson Addison-Wesley. All rights reserved.,10-29,Industry Effects of Technical Change,If neutral technical progress occurs in one industry, the output of that industry will increase at the expense of the other. If technical progress allows an industry to save on the use of the factor it uses less i
28、ntensively, then the output of that industry could rise or fall.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-30,Economic Growth and Terms of Trade for a Large Country,With neutral economic growth, the terms of trade of the large country will tend to fall as the country grows. Pro-
29、trade biased growth will cause the terms of trade to deteriorate more than under neutral growth. Anti-trade biased growth will lead to an improvement in the terms of trade.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-31,Immizerising Growth,Immizerising Growthgrowth that results in
30、 a reduction of the countrys welfare level. Refer to Figure 10.4 (next slide).,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-32,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-33,Is Immizerising Growth Common?,No, because: Precise conditions on both the nature of grow
31、th and world demand must hold. Government policy (e.g., tariffs) can be used to counteract the negative effects of growth.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-34,Dutch Disease,The phenomenon of a boom or good fortunes for one part of a countrys economy eventually leading t
32、o very bad times for the economy as a whole is known as the Dutch disease. Refer to Item 10.1 The Dutch Disease,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-35,International Flows of Factors,Labor and migration Capital and multinational corporations,Copyright 2007 Pearson Addison-W
33、esley. All rights reserved.,10-36,Labor Flows,The U.S., Canada, Australia and other countries have experienced large inflows of migrants. Migration has resulted from government policies such as: Guest worker program (Europe) in which foreign workers are invited to temporarily relocate and work in a
34、host country,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-37,Reasons for Migrating,Better economic circumstances in another country. Refuge from political tyranny or devastation. Reunion with other family members.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-38,Br
35、ain Drain vs. Brawn Drain,Brain Drainprocess whereby skilled workers leave their homeland and relocate abroad. Brawn Drainthe outflow of unskilled workers to other countries.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-39,U.S. Capital Flows,In the 19th century, the U.S. was a capi
36、tal-importing country. For much of the 20th century, the U.S. was a capital exporter. Since 1985, the U.S. has moved from being the worlds largest net creditor to being the worlds largest net borrower.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-40,Direct Foreign Investment and MN
37、Cs,Direct Foreign Investmenthappens when a domestic firm acquires ownership or control of the operations of a foreign firm. Multinational Corporations (MNCs) firms that own and operate capital in one or more foreign countries.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-41,Feature
38、s of U.S. MNCs,Manufacturing accounts for the largest share of U.S. MNC employment (refer to Table 10.6 Employment of Nonbank U.S. MNCs). 65% of U.S. MNC employment is in developed countries, primarily Western Europe (refer to Table 10.7).,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,
39、10-42,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-43,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-44,What Special Advantages do MNCs Have?,MNCs may have access to special technology. There may be increasing returns to scale that accrue to a firm operating plants
40、in many locations.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-45,Outsourcing,Outsourcingthe movement or shifting of production by a firm to a foreign location. See Item 10.2 for more details.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-46,Economic Analysis of F
41、actor Movements,The case of labor migration Definition of terms: Marginal Product of Labor (MPL) Diminishing Returns to Labor Value of Marginal Product of Labor (VMPL) Profit-maximizing Rule Effects of immigration of foreign workers,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-47,M
42、arginal Product of Labor (MPL),MPLthe additional amount of output that can be produced with the addition of one more worker to the production process.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-48,Diminishing Returns,Diminishing returns to laborthe fact that as more and more work
43、ers are added to the production process, holding all other factors constant, the marginal product of labor will eventually decline.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-49,Value of Marginal Product of Labor (VMPL),VMPLthe monetary value of the marginal product of labor or,
44、alternatively, the marginal revenue to producers from hiring the last worker. In equation form:where P is product price.,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-50,VMPL Curve and Equilibrium,Refer to Figure 10.5 VMPL curve is downward-sloping due to diminishing returns and als
45、o represents the demand-for-labor curve. Given a fixed supply of workers, the interaction of the demand and supply in the labor market determines the wage rate. The area under the VMPL curve represents labor income and income paid to capital owners.,Copyright 2007 Pearson Addison-Wesley. All rights
46、reserved.,10-51,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-52,Effects of Foreign Labor Migration,Wages are driven downward. Increase in labor force results in more output produced. There is an income redistribution effect: domestic labor loses income while capital owners benefit because the increased production leads to more intensive use of capital and to a rise in its rental prices.,Chapter 10,Additional Chapter Art,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-54,Copyright 2007 Pearson Addison-Wesley. All rights reserved.,10-55,
