Problem Set 1 - ECO 510 International Trade and Commercial...

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ECO 510 International Trade and Commercial Policy Instructor: Ali Gungoraydinoglu Problem Set 1 This homework consists of three problems regarding Labor Productivity and Comparative Advantage - Chapter 3 1. Page 22, question # 4. Over the last few decades, East Asian economies have increased their share of world GDP. Similarly, intra-East Asian trade-- that is, trade among East Asian naitons-- has grown as a share of world trade. More than that, East Asian countries do an increasing share of their trade with each other. Explain why, using the gravity model. The value of trade between any two countries is proportional, other things equal, to the product of the two countries' GDPs, and diminishes with the distance between the two countries. As East Asian economies increase in size, their GDP (represented by Y in the equation) both increase, so their trade among themselves increases. In addition, the trade among themselves is an inverse function of their distance to each other, so countries that are closer together will trade more with each other as a result. As far as an increasing share of their trade being with each other, this could be due to larger markets for goods in the
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This note was uploaded on 06/10/2010 for the course ECON EMBA taught by Professor Cyrilchang during the Spring '08 term at University of Mississippi Medical Center.

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Problem Set 1 - ECO 510 International Trade and Commercial...

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