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8 so instead of exporting a lot of these goods they

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Unformatted text preview: hese goods, they are consumed at home. The low income countries don't trade much. 2. The low income countries are simply poor - they have a low share of world income. Thus they do not trade much. 3. The pattern of world protection has historically been biased against the low-income countries. The high-income countries have high protection against the laborintensive manufactured exports of the low-income countries (regarding them as a threat to local manufacturing). The low-income countries have high protection against the goods from the high-income countries (regarding them as necessities). Figure 14.5 K K L Figure 14.6 X2 S 2 B T A DS K L A 1 C w DN N r L S' T' N' X1 Empirical relationship between K/L in production and income elasticity of demand in consumption DEPENDENT VARIABLE: LOG OF FITTED INCOME ELASTICITY regressed on log of indirect (inclluding intermediate use) K/L ratio and constant coefficient (ln) K/L ratio constant standard error 0.145 0.010 (significant at 1%) -0.162 0.006 (significant at 1%) adjusted R2 observations F 0.059 6216 212.997 correlation between K/L and fitted income elasticities: 0.126 predicted income elasticity at maximum K/L predicted income elasticity at minimum K/L 1.217 0.610...
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