...Productivity and Comparative Advantage: The Ricardian Model Copyright © 2012 Pearson Addison-Wesley. All rights reserved. Preview • • • • • • • • Opportunity costs and comparative advantage Production possibilities Relative supply, relative demand & relative prices Trade possibilities and gains from trade Wages and trade Misconceptions about comparative advantage Transportation costs and non-traded goods Empirical evidence Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 3-2 Introduction • Sources of differences across countries that lead to gains from trade: – The Ricardian model (Chapter 3) examines differences in the productivity of labor (due to differences in technology) between countries. – The Heckscher-Ohlin model (Chapter 5) examines differences in labor, labor skills, physical capital, land, or other factors of production between countries. Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 3-3 Ricardian Model Assumptions 1. Two countries: domestic and foreign. 2. Two goods: wine and cheese. 3. Labor is the only resource needed for production. 4. Labor productivity is constant. 5. Labor productivity varies across countries due to differences in technology. 6. The supply of labor in each country is constant. 7. Labor markets are competitive. 8. Workers are mobile across sectors. Copyright © 2012 Pearson Addison-Wesley. All rights reserved. 3-4 Comparative Advantage • Suppose that the domestic country has a comparative advantage in cheese...
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...Needed to Make a Car | Production of Grain | | Time | Production | Time | Production | America | 1 Year | 4 Cars | 1 Year | 10 Tons | Japan | 1Year | 4 Cars | 1 Year | 5 Tons | b. Graph the productions possibilities frontier of the American and Japanese economies. c. For the US, what is the opportunity cost of a car? Of grain? For Japan, what is the information in a table analogous to Table 1. For Japan: The Opportunity Cost of a Car is 2 and Grain is 2.5 with no trade. For the US: The opportunity cost of a car is also 2, and grain is 5. Opportunity Cost | | Car Per Year | Grain Per Year | America | 2 | 5 | Japan | 2 | 2.5 | d. Which country has an absolute advantage in producing cars? In producing Grains? Neither country has an absolute advantage in producing cars, however America has the absolute advantage in producing Grain. e. Which country has comparative advantage in producing cars? In producing grains? US has the comparative advantage in grain, neither in cars. f. US 2 cars, Grain 5 tons, Japan 2 Cars, Grain 2.5 tons g. Without trade neither country will have an advantage. With trade, each country can spare workers to help produce more of the good that needs to be traded. Since US can produce more grain than Japan, they would want to trade grain to Japan for cars, and vice versa with Japan. 4. Consider the following events: Scientists reveal that consumptions of oranges decreases the risk of diabetes, and at the same time,...
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...A Direct Test of the Theory of Comparative Advantage: The Case of Japan Author(s): Daniel M. Bernhofen and John C. Brown Reviewed work(s): Source: Journal of Political Economy, Vol. 112, No. 1 (February 2004), pp. 48-67 Published by: The University of Chicago Press Stable URL: http://www.jstor.org/stable/10.1086/379944 . Accessed: 10/02/2012 10:27 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. The University of Chicago Press is collaborating with JSTOR to digitize, preserve and extend access to Journal of Political Economy. http://www.jstor.org A Direct Test of the Theory of Comparative Advantage: The Case of Japan Daniel M. Bernhofen and John C. Brown Clark University We exploit Japan’s sudden and complete opening up to international trade in the 1860s to test the empirical validity of one of the oldest and most fundamental propositions in economics: the theory of comparative advantage. Historical evidence supports the assertion that the characteristics of the Japanese economy at the time were compatible with the...
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...ACADEMIC PAPERa Longitudinal patterns of comparative advantage in the textile complex – part 1 An aggregate perspective Peter Kilduff and Ting Chi Department of Consumer, Apparel and Retail Studies, University of North Carolina at Greensboro, North Carolina, USA Abstract Purpose – This paper seeks to present a preliminary investigation into long-term patterns of trade specialization among leading textile- and apparel-exporting nations, assessing patterns of comparative advantage across the textile machinery, man-made fiber, textile and apparel sectors of the textile complex to determine whether these conform with both trade specialization and industry evolution theories. A model of evolutionary change in intra-complex specialization is defined and evaluated. Design/methodology/approach – A revealed comparative advantage index is employed to evaluate international competitiveness for 30 nations over a 42-year period. With repeated measures, ANOVA is used, to determine the significance of the observed patterns across five income-defined groups of nations. Findings – Long-term patterns of specialization broadly reflect expectations of factor proportions theory and industry evolution models. Product and income group characteristics combine to influence comparative advantage. Higher income nations generally remain stronger in more capital-intensive sectors, while lower income countries have emerged to dominate labor-intensive sectors. However, inclusion of a more...
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...prlic@globalinsight.com Robert Hoffman Senior Consultant 1 Adelaide Street East Suite 2505, P.O. Box 198 Toronto, Ontario, M5C 2V9 Canada +1 416 682-7311 robert.hoffman@globalinsight.com Executive Summary - November 2007 I. Broad Market Study An overview of the broad cosmetics industry (also referred to as the cosmetics and toiletries (C&T) industry) in the EU, Japan, China, and the U.S. reveals that Europe's market size is almost as large as the U.S. and Japan combined, due to its large population. In 2006, the U.S. cosmetics market was €38.2 billion, while Japan's was €23.7 billion and China's €8.2 billion. The total EU27 cosmetics market was valued at €63.5 billion in 2006. Among the EU countries, Germany has the largest cosmetics market, valued at €11.7 billion, followed by France (€10.4 billion), the U.K. (€10 billion), Italy (€8.8 billion), and Spain (€7.4 billion). Europe, U.S., China, Japan C&T Market Sizes, Retail Sales Price, 2006, Total market €136.2 billion EU12, 5.9, 4% Switzerland, 1.6, 1% Norway, 1.0, 1% China, 8.2, 6% EU15, 57.6, 43% Japan, 23.7, 17% US, 38.2, 28% Source: Euromonitor, COLIPA Statistics Working Group Per Capita Spending The average EU27 per capita cosmetics spending is €128...
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...services between countries without imposition of constraints such as quotas, tariffs and duties (Kent, 2004). It is a win-win situation as free trade enables a country to emphasis on their core competitive advantages which can boost up income growth, at the same time maximizing economic output. In other words, free trade allows a country to specialize on certain product that they has the distinctive comparative advantage (Herrmann, 2000). On the other hand, it usually benefits the developed countries whose most of the big firms are looking to sell and expand their goods or services abroad due to it is a great opportunity for them to open up an international market. In fact, Malaysia is an actively pursuing free trade agreements with numerous countries, therefore, free trade might bring some positive and negative impact for Malaysia (Esther, 2014). Free trade benefits Malaysia such as enhance product quality and production efficiency, wider consumer choice lead to increases in standard of living and also reduction in unemployed resources. However, free trade will also cause some issues for Malaysia involved local firms unable to compete with foreign market, reduction job opportunity, environmental damaged and free trade may encourage dumping (Edge, 2010). 2.0 Advantages of Free Trade 2.1 Raise Competition and Lead to Improve in Product Quality Nowadays, many people are willing to purchase imported goods as the good product quality although the price is relatively higher...
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...Ethics and morality are relative ( is it ethical to pay bribes) Relativism – Problems * There are no absolutes - murder, slavery, torture, rape OK * What is meant by a society? Sub-societies, country, subsountry, block, indv * Leads to conclusion - each person’s opinion is correct * Nothing that anyone does is morally wrong 2. Egoism Most Widely Used Concept * One ought to act in his or her own self interest * Ethical behavior is that which promotes one’s own self interest * Does not mean should not obey laws - only do so if in self interest * Problem - Externalities associated with private actions - OK to dump toxic wastes as long as don’t get caught * EX: we all have a little of this in us speeding 75 see a cop and slow to 55mph 3. Utilitarianism * The morality of an action can be determined by its consequences * An action is ethical if it promotes the greatest good for the greatest number * Perform Moral Cost Benefit analysis * Benefit> Cost ETHICAL Cost > Benefit UNETHICAL * EX: Harry Truman dropping bomb on Japanese * Problem : How do you quantify the benefits? How do you value benefit and cost * Can lead to unjust consequences, * Restrictions against majority to protect minority is not Utilitarian 4. Deontologism * Derived from the Greek word for Duty * Actions are not justified by their consequences. Factors other than good outcomes determine the rightness...
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...682-7312 antonia.prlic@globalinsight.com Robert Hoffman Senior Consultant 1 Adelaide Street East Suite 2505, P.O. Box 198 Toronto, Ontario, M5C 2V9 Canada +1 416 682-7311 robert.hoffman@globalinsight.com Executive Summary - November 2007 I. Broad Market Study An overview of the broad cosmetics industry (also referred to as the cosmetics and toiletries (C&T) industry) in the EU, Japan, China, and the U.S. reveals that Europe's market size is almost as large as the U.S. and Japan combined, due to its large population. In 2006, the U.S. cosmetics market was €38.2 billion, while Japan's was €23.7 billion and China's €8.2 billion. The total EU27 cosmetics market was valued at €63.5 billion in 2006. Among the EU countries, Germany has the largest cosmetics market, valued at €11.7 billion, followed by France (€10.4 billion), the U.K. (€10 billion), Italy (€8.8 billion), and Spain (€7.4 billion). Europe, U.S., China, Japan C&T Market Sizes, Retail Sales Price, 2006, Total market €136.2 billion EU12, 5.9, 4% China, 8.2, 6% Switzerland, 1.6, 1% Norway, 1.0, 1% EU15, 57.6, 43% Japan, 23.7, 17% US, 38.2, 28% Source: Euromonitor, COLIPA Statistics Working Group Per Capita Spending The average EU27 per capita cosmetics spending is €128 per year. Denmark and Sweden have the...
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...factors that can create comparative advantage for a company. Give some relevant examples. CONTENT Facing with the diversity of the market as well as the establishment of more and more enterprises, managers’ pressure is weighed on how to make their firms different and attract more customers compared to other companies. In the opinion of Michael Porter, entrepreneurs who only focus on two objectives of growth and product diversification strategy does not guarantee long-term success for business. It is important for any business organization to build a sustainable comparative strength. Since then the concept of “Comparative advantage” was born with the sense that the specific value of the enterprise will help businesses reach high performance and always be unforgettable. There are many factors that create comparative advantages for business and one of the basic elements and also plays the important role is the cultural factors. It is supposed that culture is the promotion of the ability and the fullest expression of human nature. Hence, culture exists in any human activity such as economy, politic, society, communication, behavior, or in the innermost thoughts. Each nation brings its own different cultural values, creating the cultural diversity. This has caused not only difficulties for multinational companies to be able to adapt but also an opportunity for businesses to learn, thus make the particular policies that create comparative advantages which other companies can...
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...Topic: Japanese export and trade patterns in view of Heckscher–Ohlin theory Prepared by student of 17OMA-01/15ФА group Of intramural Master’s program Of Faculty of Finance First year Usacheva P.A. Moscow - 2016 Japan has the world's second largest developed economy, it’s ranked 4th-largest in the world by GDP based on purchasing power parity (PPP). Japan is a member of the G7 and such trade organizations as Asia-Pacific Economic Cooperation (APEC), World Trade Organization (WTO), OECD, etc. Based on statistics from the International Monetary Fund’s World Economic Outlook Database, Japan’s total Gross Domestic Product amounted to $4.83 trillion in 2015. Exports from Japan amounted to US$625.1 billion in 2015, down -25.1% since 2011 with a -9.5% decline from 2014 to 2015. Therefore, exports accounted for about 12.9% of total Japanese economic output. Given Japan’s population of almost 127 million people, its total $625.1 billion in 2015 exports translates to roughly $4,925 for every resident in the island nation. Japan’s unemployment rate was an estimated 3.4% by 2016. Japan is the world's largest creditor nation as well as having the highest debt per GDP. As of 2015, 54 of the Fortune Global 500 companies are based in Japan. The goods that Japan has exported have changed over time, from natural resources and agricultural products to manufactured goods, textiles, steel, and cars. Time period | Japanese export | 13-15th centuries (trading with China) | Gold, copper...
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...1. Do theories of late industrialization explain national differences in the institutional and organizational characteristics of contemporary business? How do these ideas help to explain variations in economic performance? The level of economic development of the country effects development of institutions and characteristics of the business, which in return affect performance. In first part of the essay we will discuss early industrialisation and different theories of late development. After discussion will lead us to key institutions: financial markets, textile industry in relation to business group and labour market and steel industry with relationship to government intervention. In the conclusion we will discuss the current situation, highlight that there is no perfect system. There are many factors that effect economic performance and in order to be successful the changes in the world should be accommodated with the changes in institutions and organisational characteristics. The main characteristics of industrialisation are changes from agricultural to industrial economic structure, substitution of machines for human skills and replacement of home-made by purchased in stores goods. The First Industrial Revolution happened in early 18th century in textile industry in UK, they had technological means, right institutional and organisational characteristics, government encouragement, and a large and varied trade network. Britain became the world's leading industrial...
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...the main sections you are going to have in your answer [such as 'theoretical discussions', 'critical discussions'] - “The contribution by Porter (1990) on the competitive advantage of nations has led to an extensive discussion among academics and practitioners on the sources of international competitiveness (Grant, 1991; Gray, 1991). However, in order to understand why so much emphasis is placed on the diamond framework in the management literature, this essay will discuss Porter’s concept of the Diamond and the factors that contribute to the development of national competitive advantage. This paper will begin with a theoretical approach followed by the reception of different authors and schools of thoughts who disagreed with his management thinking, and then goes on to consider empirical issues which have arisen subsequently, followed by a conclusion.” Theoretical Discussions (explain the 'main theory' [such as 'Late/Early industrialization', 'Managerial enterprise', 'Weber's theory about impacts of culture'] in this question) - “Porter’s theory of national competitive advantage is based upon a study of the characteristics of the national environment which identifies four sets of variables, and an additional two, which influences a company’s ability to establish and maintain competitive advantage within international markets. These interacting determinants are: factor conditions; demand conditions; related and supporting industries; and firm strategy, structure and rivalry...
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...‘late’ industrialization is applied to describe two main types of national businesses that existing in developed and developing countries, which explains the key institutional and organizational differences among countries in particular to some extend. Each country has fallowed different pathway and carried out their industrialization in different period. It is known that the UK is the first country that achieved early industrialization revolution, which was followed by the US. And then in the late twentieth century, Germany, Japan and China implemented their industrialization process with dramatic change on their economic performance. The purpose of this essay is to use the conception of ‘early’ and ‘late’ industrialization to explain the key institutional and organizational characteristics of national business systems by comparative perspective. First of all, the theories of industrialization will be displayed. Then this paper will concentrate on five main comparative countries, which are United States, Japan, Britain, Germany and China, to clarify major differences of national business systems. Moreover, further implications and debates upon these countries long-term national competitiveness will be given to assess the...
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...Heckscher-Ohlin Model. Does empirical evidence validate the propositions of this theory? Word Count: 2,909 words Essay 1 : Discuss how trade leads to the convergence of factor prices in the Heckscher-Ohlin Model. Does empirical evidence validate the propositions of this theory? Abstract The Heckscher-Ohlin model (H-O model) states that a country possesses comparative advantage for those goods whose factors of production are in relatively abundant supply in the country’s endowment. Input combinations depend on the relative factor prices and these in effect, influence the goods prices. Factor prices and the goods prices have a one-to-one relationship. Countries tend to export goods, whose production makes intensive use of the resources. There are four components to the H-O model, and these are: The Heckscher-Ohlin Theorem, The Stopler-Samuelson Theorem, The Rybczynski Theorem and The Factor-Price Equalisation Theorem. The Heckscher-Ohlin model (H-O model) was developed by Eli Heckscher and Bertil Ohlin at the Stockholm School of Economics [Krugman and Obstfeld, 2003]. This model states that a country possesses comparative advantage for those goods whose factors of production are in relatively abundant supply in the country’s endowment. Countries, in this model, are differentiated by the factor intensity of the good they produce. A land-intensive good will have a high land-labour ratio. Whereas, a labour-intensive good will have a lower...
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...autonomous B. permanent C. induced D. total E. special 4. According to the permanent income hypothesis, if a person won the lottery, they would spend _____ that year. A. all of the winnings B. some of the winnings C. none of the winnings D. more than all of the winnings 5. The permanent income hypothesis is a theory from economist _____ . A. Adam Smith B. John Maynard Keynes C. Thorstein Veblen D. Milton Friedman E. Karl Marx 6. Conspicuous consumption is a theory from economist _____ . A. Adam Smith B. John Maynard Keynes C. Thorstein Veblen D. Milton Friedman E. Karl Marx 7. In the U.S., the largest component of C is ______ . A. durable goods B. services C. nondurable goods D. inventory E. residential housing 8. The consumption function tells us that, as income rises, consumption _____ . A. declines B. remains the same C. rises but more slowly than disposable income D rises but more quickly than disposable income 9. When DI levels are very low (close to zero), C is _____ . A. zero B. higher than DI C. lower than DI D. equal to DI 10. When DI = C, savings is _____ . A. positive B. zero C. negative D. 14 11. Which of the following relations is not correct A. MPC + MPS = 1 B. APC + APS = 1 C. MPS = MPC + 1 D. 1 – APS = APC E. 1 –...
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