Trade Discussion

Trade Discussion - Trade by Shu and Stephanie ECON0424...

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Trade by Shu and Stephanie ECON0424 Economic Prosperity in the Global Economy Professor Leticia Arroyo Abad October 1, 2009
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O’Rourke and Willamson: Chapters 3 and 4 n The volume of trade: an unsatisfactory index of commodity market integration. n Cost of moving goods between markets: transport, trade barriers n In the absence of transport costs and trade barriers, international commodity markets would be perfectly integrated.
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Transportation Revolutions and Commodity Market Integration n Transport costs and protection drive a wedge between export and import prices. n tariffs in the Atlantic economy did not fall from the 1870s to World War I; falling transport costs provoked globalization. n Transportation n Steamships n Opening of the Suez Canal n Railroad n Refrigeration n The evolution of a global economy had to compete with the rise of large and integrated home markets n Older literature: globalization à trade creation, internal market integration à trade diversion
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Were Heckscher and Ohlin Right? n Countries differ in terms of their endowment, economic structure, and consumption patterns, and thus the effects of common shocks may vary across economies n Cheap grain had different effects on European real wages n Commodity market integration increased real wages in Britain more than in Sweden n Trade has a bigger impact on factor prices in some economies than in others n An econometric test: explore the determinants of relative factor prices for a larger number of countries n Trade had a predictable impact on relative factor prices and income distribution along Heckscher-Ohlin lines
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Were Heckscher and Ohlin right? (Cont’d) n Discovery: the most consistent results across countries related to land rents n Agricultural land extremely vulnerable to shocks affecting that sector n Land, unlike labor and capital, could not move n When agricultural prices fell, exit was not an option for landowners n Agricultural interests gave voice to a strong demand for protection
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Trade and Poverty: When the Third World Fell Behind? n Globalization did contribute to the great divergence before 1940 n 1800-1913, 1950-2009: open, pro-global n Facts n Rise in the Core-Periphery income per capita gap n De-industrialization in the Poor Periphery n Secular terms of trade boom and bust in the Periphery n Terms of trade volatility much bigger in the Periphery
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Trade and Poverty: When the Third World Fell Behind? (Cont’d) n Asymmetric impact of secular terms of trade improvement n Exporters of manufactures in the rich core can insure against price volatitily cheaply n Poor primary product exporters cannot n Asymmetric impact of terms of trade volatility between Core and Periphery n Inequality impact n rose in the poor periphery as rising terms of trade increased land rents, mineral profits n powerful where exports were primary products produced by immobile factors – land + minerals n growth suppressed ß pro-rent-seeking/anti-growth institutions (political inequality)
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This note was uploaded on 04/19/2010 for the course ECON 0430 taught by Professor Arroyoabad during the Fall '10 term at Middlebury.

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Trade Discussion - Trade by Shu and Stephanie ECON0424...

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