Econ 161 - Lecture 4

Econ 161 - Lecture 4 - GlobalIntegrationofLatinAmerica...

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Unformatted text preview: GlobalIntegrationofLatinAmerica Lecture4 c Marc-AndreasMuendler UniversityofCalifornia,SanDiego April7,2011 4.Competitiveness,ComparativeAdvantageandtheTermsofTrade Econ161, c M.Muendler AbsoluteandComparativeAdvantage Evenifacountryhasanabsoluteadvantageinallsectors,itwill haveacomparativeadvantageinsomesectors(exceptfortheun- likelycasewhenopportunitycostshappentobeequaleverywhere). Theconsumptionpossibilitysetwithfreetradeshowsthemaximum amountgoodsthataneconomycanobtainthroughtrade. Theconsumptionpossibilitysetwithfreetradeisalwaysatleastas largeastheproductionpossibilityset,andgenerallylarger. So,therearegainsfromtradeforthecountry asawhole . 4.Competitiveness,ComparativeAdvantageandtheTermsofTrade Econ161, c M.Muendler AbsoluteandComparativeAdvantage Californiahasanabsoluteadvantagebothincomputers and roses: a * computers =18 hrs< 60 hrs = a computers and a * roses =10 . 8 min< 12 min = a roses Comparativeadvantage:Considertheopportunitycosts! Opportunitycostsofcomputersintermsofroses a computers /a roses vs. a * computers /a * roses Mexicowillandshouldspecializeinrosesbecause a computers /a roses =300 > 100= a * computers /a * roses 4.Competitiveness,ComparativeAdvantageandtheTermsofTrade Econ161, c M.Muendler MeasuresofCompetitiveness Competitivenessofanindustry:Productivity(absoluteadvantage) Mexicanrosegrowers: 1 /a roses =5 roses/hr Mexicancomputermakers: 1 /a computers =1 / 60 computers/hr Competitivenessofaneconomy:Averageproductivity Mexicoscompetitivenessinautarky:manyproductionmixesarepos- siblebut1computerisworth300rosesinanymix. So 1 /a computers =1 / 60 computers/hr =5 roses/hr Mexicoscompetitivenessundertrade: 9 millionrosesat 5 roses/hr 4.Competitiveness,ComparativeAdvantageandtheTermsofTrade Econ161, c M.Muendler LaborProductivityrelativetoUSA,Manufacturing Country 1970 1980 1990 1996 Argentina .42 .41 .55 .67 Brazil .28 .26 .29 .37 Chile .25 .24 .23 .20 Colombia .29 .25 .37 .34 CostaRica .15 .14 Mexico .32 .30 .44 .38 Peru .33 .25 .16 .15 Uruguay .35 .22 .20 .22 USA 1.00 1.00 1.00 1.00 Source :JorgeKatz, ECLACReview 71,August2000:69 4.Competitiveness,ComparativeAdvantageandtheTermsofTrade4....
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This note was uploaded on 08/14/2011 for the course ECON 161 taught by Professor Muendler during the Spring '11 term at San Diego.

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Econ 161 - Lecture 4 - GlobalIntegrationofLatinAmerica...

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