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INTL3300 11182010 NOTES

INTL3300 11182010 NOTES - Declining terms of trade...

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November 18, 2010 INTL3300 Trade and Development Liberal economic theory prescribes FREE TRADE as essential for development Smith Ricardo: specialization allows countries to consume more in terms of quantity than they otherwise would be if they were to be self sufficient Criticism: assuming that technology levels are fixed Factor endowment: specialize in production of goods that intensively use those factors of which you have an abundance Abundance of land, agricultural goods, Capital, produce capital intensive goods Comparative Advantage Structuralist Critique These kind of exchanges were intrinsically and persistently unequal
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Unformatted text preview: Declining terms of trade Worsening terms of trade means that the price ratio is going against you if terms of trade are improving, the ratio/differential is working for you Reasons for the secular decline in terms of trade? Unequal terms of trade Can create price rather than take price Strong labor in the core: cost reductions from increased productivity can be translated into either price reductions or wage increases; in core countries, unemployment is low and labor unions are stronger Weak labor in the periphery Income Elasticity of Demand...
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