Lecture 6 - Trade Hypothesis

Lecture 6 - Trade Hypothesis - 2. Rising Real Incomes this...

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Diminishing Trade Hypothesis - International trade started shrinking between WW1 and WW2 - In the 1930’s international trade collapsed because of the depression - Prior to the war places like Africa and Asia were getting imported goods but when the war started they had to start being self-sufficient; after the war, trade never went back to the rate that it was at before - Trade Hypothesis: it’s inevitable that trade will continue to decrease (this was based on what the economy was seeing) Governmental Arguments: 1. Technological change – according to the government, technology was changing the following: a. Industrialized countries were exporting manufacturing goods and imported primary products like food b. Primary producing countries exported primary products and imported manufactured goods - Synthetic products were starting to replace natural products - Primary producing countries were starting to become industrialized and making manufacturing goods to become self-sufficient
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Unformatted text preview: 2. Rising Real Incomes this would result in a decline of international trade a. Engels Law as incomes rise, people started to spend less on food and basic necessitates. Later in life a corollary was added: as incomes continue to rise the population started spending more of their income on services-Demand for food and manufactured goods started to decline relatively quickly 3. Economic Instability was increasing greater public demand for protectionism a. This remark was incorrect because there was stability for a few years after the war b. There has actually been a decrease in protectionism within most countries; mainly in the areas of agriculture and textiles -Since WW2 the most rapid growth in trade has been between industrialized countries-Industrialized countries are now trading manufacturing goods for manufacturing goods (ie. car parts between Canada and USA)...
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This note was uploaded on 04/18/2008 for the course ECONOMICS ECN 220 taught by Professor Jolly during the Winter '08 term at Ryerson.

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Lecture 6 - Trade Hypothesis - 2. Rising Real Incomes this...

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