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Lecture 6 - Trade Hypothesis

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

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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. Engel’s 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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Lecture 6 - Trade Hypothesis - 2 Rising Real Incomes –...

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