ECON3109 Lecture Notes - Lecture 9: Absolute Advantage, Investment Goods, Externality
Document Summary
Econ3109 lecture 9: international factors and economic growth. Empirically strong relationship between export growth and gdp growth: externalities from export sector to the rest of the economy. Absolute advantage: adam smith: absolute advantage > country can produce good cheaper than its trading partner. If absolute advantage isn"t in manufacturing won"t experience improves in technology etc: changing technology and the way we produce things, links to cumulative causation and structural changes. If any one person is worse off it is not pareto efficient. Problems with the theory of comparative advantage: theory assumes perfect competition, perfect information, no uncertainty. In order to prove perfect competition is efficient, price must equal marginal cost, price is equal to the cost of society producing one more unit. With unemployment, gain from trade may be more than offset by losses from unemployment. The law of comparative advantage has nothing to say about the growth effects of trade.
