Winners and Losers from International Trade

Winners and Losers from International Trade - large fall in...

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Winners and Losers from International Trade From Last Time How is the world price determined? By supply and demand in the international trade market. The world price equates the demand for imports with the supply of exports. Immiserizing Growth Specializing more in producing goods for export can make the whole nation worse off. Why? Exporting more of a good lowers its price on world markets, so revenues from exports may fall.
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Suppose Brazil expands its capacity to grow coffee beans. The supply of coffee will increase and the price will fall. Production moves from A to C and consumption from B to D. Brazil is now on a lower indifference curve. growth must be biased towards export sector demand for the exports must be price inelastic so that the increase in supply causes a
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Unformatted text preview: large fall in price country must be already heavily exporting the good so that the fall in price offsets the gains from the increase in supply Rybczynski Theorem If the terms of trade are fixed, the growth of one factor of production reduces the output of one good. The growth of one factor relative to others raises the output of the sectors using it intensively and reduces the outputs of the other sectors. The expanding sector out-competes the other sectors for factors of production. This outcome is referred to as Dutch disease where the development of the natural gas industry limited the development of the manufacturing sector....
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Winners and Losers from International Trade - large fall in...

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