GOV_298_22 - Regional Trade Organizations READING...

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Regional Trade Organizations READING ASSIGNMENT: Bohara, Alok K., Kishore Gawande and Pablo Sanguinetti. 2004. Tra Journal of International Economics 64(1): 65-88. Chase, Kerry A. 2003. Economic Interests and Regional Trading Arra International Organization 57(1): 137-174
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Plan Why trade? Comparative advantage, factors, sectors, winners, losers Why trade agreements? Why regional trade arrangements (as opposed to world trade arrangements)? Do RTAs create or divert trade? Richardson Hypothesis
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The US and Trade: http://www.census.gov/foreign-trade/top/index.html
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Why do countries engage in trade? Logic of COMPARATIVE ADVANTAGE (Ricardian model)
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One American worker can produce more computers or more shoes than one Brazilian worker US has an ABSOLUTE ADVANTAGE in both computers and shoes So why trade? Example is a li’l out of date…
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Differences in opportunity costs! Suppose we move one American worker from Computers to Shoes We lose 50 computers for 200 shoes For each additional pair of shoes produced, the US must forgo 0.25 computers (50/200=¼) The (constant) opportunity cost of each pair of shoes is ¼ computer The (constant) opportunity cost of each computer is 4 pairs of shoes (200/50=4)
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Differences in opportunity costs! Suppose we move one Brazilian worker from Computers to Shoes We lose 5 computers for 175 shoes For each additional pair of shoes produced, Brazil must forgo 0.03 computers (5/175=0.029) The (constant) opportunity cost of each pair of shoes is 0.03 computer The (constant) opportunity cost of each computer is 35 pairs of shoes (175/5=35)
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Where is it RELATIVELY cheaper to produce computers? In the US it costs 4 shoes In Brazil it costs 35 shoes Where is it RELATIVELY cheaper to produce shoes? In the US it costs ¼ computer
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This note was uploaded on 01/16/2012 for the course GOVT 298 taught by Professor Staff during the Spring '10 term at Georgetown.

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GOV_298_22 - Regional Trade Organizations READING...

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