ECO 2117 Lecture Notes - Lecture 17: Factors Of Production, Perfect Competition, Consumer Sovereignty
20 Aug 2016
School
Department
Course
Professor
ECO2117
April 7 2016
International Trade: Trade Theories
-the problem with traditional trade theory: these conclusions depend on assumptions that
are often not met in the real world
-fixed resources, full employment, immobility of production factors between countries (1)
-fixed or free technology and consumer sovereignty (2)
-mobile production factors, perfect competition, no risk (3)
-national governments do not play a role (4)
-balanced trade, economies respond fast to price changes (5)
-gains from trade benefit nationals of that country (6)
*continued from last time (slide 29)
-factor mobility, competition, and risk (critique of assumption 3)
-factor mobility: adjustment of economic structures to changes in price does not happen
overnight
-adjustment is more difficult for less diversified economies
-perfect competition through tariff or nontariff barriers, economies of scale, monopolies or
oligarchies
-specialization is risky
-national governments do not play a role (critique of assumption 4)
-national governments are active in influencing the economy
-balancing growth poles and stagnating sectors (inequality among the economy)
-no such international government for stagnating countries
-influence economic and industrial policy
-tariffs, quotas and subsidies
-balanced trade (critique of assumption 5)
-in reality there are current account and capital account deficits, hence there are balance of
payment problems (macroeconomic instability)
-benefits from trade (critique of assumption 6)
-implicit assumption is that the gains of trade accrue to the nationals of the country
-how much of the revenue is going to go toward wages or equal income distribution?
-enclave economies: foreign-owned-firms control the production in an export sector and
profits are transferred abroad
-conclusions to the trade theory
-trade is an importance stimulus for economic growth
-important to remember that nations may not benefit
-rich countries usually end up benefitting more
-important to understand the economic links between domestic economy and the rest of the
world (exported to where, long term trade dynamics, etc)
-the degree to which LDCs can benefit from trade depends on their ability to negotiate trade
concessions, to mobilize underutilized resources, deal with multinational firms, etc
International Trade: Trade Policies
-national trade strategies for development:
-export promotion
-import substitution
-industrialization strategy approach
-regional economic integration
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
The problem with traditional trade theory: these conclusions depend on assumptions that are often not met in the real world. Xed resources, full employment, immobility of production factors between countries (1) Xed or free technology and consumer sovereignty (2) Mobile production factors, perfect competition, no risk (3) National governments do not play a role (4) Balanced trade, economies respond fast to price changes (5) Gains from trade bene t nationals of that country (6) Factor mobility, competition, and risk (critique of assumption 3) Factor mobility: adjustment of economic structures to changes in price does not happen overnight. Adjustment is more dif cult for less diversi ed economies. Perfect competition through tariff or nontariff barriers, economies of scale, monopolies or oligarchies. National governments do not play a role (critique of assumption 4) National governments are active in in uencing the economy. Balancing growth poles and stagnating sectors (inequality among the economy) No such international government for stagnating countries.
