The Classical World of David Ricardo and Comparative Advantage
Assumptions of the Ricardian Model
A 2-country, 2-commodity world
No transportation costs
Factors mobile internally, immobile internationally
Constant costs of production
Extensions and Tests of the Classical Model of Trade
Adding Money to the Classical Model
Suppose a money economy instead of a barter economy.
A wage rate for each country, stated in that countrys currency (e.g., in U.S. $2
per hr., in the U.K., 1 per hr.)
Chapter 1 The World of International Economics
International trade and finance have never been more important.
Signs of globalization are everywhere.
The Nature of Merchandise Trade
The volume and value of world exports have grown tremendousl
Early Trade Theories: Mercantilism and the Transition to the Classical World of David
A collection of economic thought in Europe during the period between 1500 and 1750.
Mercantilism is often called the political economy of state buil
The Basis for Trade: Factor Endowments and the Heckscher-Ohlin Model
Heckscher-Ohlin In General
Heckscher, and his student Ohlin, worked in the early part of the 20th century.
Paul Samuelson refined their work after WWII.
Closer attention is paid in this
Offer Curves and the Terms of Trade
comprise all combinations of a countrys desired exports and imports at different terms of
are also known as reciprocal demand curves (J.S. Mill).
measure a countrys willingness to trade.
can be deriv
Gains from Trade in Neoclassical Theory
Problems With Classical Theory
Labor theory of value is unrealistic.
Assumption of constant opportunity costs is too restrictive.
Demand is largely ignored.
In the absence of trade
Post Heckscher-Ohlin Theories of Trade and Intra-Industry Trade
Posners Imitation Lag Hypothesis
In Posners model, there may be a delay in the diffusion of technology between
If a new product is invented in country I, there are two sorts of lag
Introduction to Neoclassical Trade Theory: Tools to Be Employed
are downward sloping because the goods are substitutes.
Slope is marginal rate of substitution (MRS): MUx/MUy.
are convex because of the principle of diminishing MRS.
represent the welfare of
Empirical Tests of the Factor Endowments Approach
1950s: Leontief conducts the first important test of H-O.
Using U.S. data Leontief calculated
average amount of capital and labor embodied in U.S. exports.
average amount of capital and labo