Chapter 7: Growth and Trade

1. Chapter 7: Growth and Trade

6. 1.Introduction Objective To understand the relationship between economic growth and international trade, in particular, the effects of growth on trade and welfare.

7. Contents Sources of economic growth Balanced versus Biased growth Rybczynski Theorem and Dutch Disease Immiserizing growth Effects of trade on growth Introduction

8. 2.Sources of growth Definition of economic growth Increase in productive capabilities Growth in Gross Domestic Products (GDP) (constant price) Expansion of PPC

9. Expansion of PPC

10. Increases in factor resources labor resources Capital Land Improvement in production technologies Sources of growth

11. Sources of growth and PPC Increase in labor resources

12. Sources of growth and PPC Technical progress in wheat production

13. 3.Balanced vs Biased Growth均衡增长与偏向性增长 Balanced growth Concept

15. Sources of Balanced Growth Increases in all factors of production at the same rate Technical progress of the same magnitude in both industries

16. Effects of Balanced Growth(under constant relative price) Production Consumption Trade Welfare

17. 40% growth Terms of trade= 1 yard for 1 bushel

18. Biased Growth • 偏向性增长 • The concept • Economic growth biased toward production of one product

20. Sources of Biased Growth Increases of factors of production at different rates Technical progress of different magnitudes in two industries

21. Effects of Biased Growth(under constant relative price) Production Consumption Trade Welfare

22. Relative price: 1 yard for 1 bushel

23. 4 Growth in Only One Factor单一要素增长 In the 2x2x2 model, assuming relative price is constant, what changes will happen to production with growth in only one factor ?

24. Growth in labor resources in the USA

25. Under constant prices, growth in a country’s endowment of one factor will result in both an increase in the output of the product that uses the growing factor intensively and a decrease in the output of the other product. Rybczynski Theorem罗勃津斯基定理

26. TadeusRybczynski 罗勃津斯基(1923-1998) • Polish-born English economist • Known for Rybczynski theorem (1955) • Studied at the London School of Economics. • Investment banker with Lazard （瑞德）

27. The Dutch Disease“荷兰病” Discoveries of vast natural gas deposits in the North Sea in the 1960s resulted in deindustrialization of the Dutch manufacturing industries.

28. 5 Effects on the Country’s Terms of Trade Small country Large country

29. Effects of Growth on a Large Country • Reduced willingness to trade and improvement in terms of trade

30. S2 C2

31. Effects of Growth on a Large Country • Increased willingness to trade and deterioration in terms of trade

32. S2 C2

33. Immiserizing Growth • 贫困化增长 Jagdish Bhagwati 巴格沃蒂(1958) Columbia University

34. S2 C2

35. Conditions for immiserizing growth to occur Growth is strongly biased toward expanding export supply and affects world price. Foreign demand is price inelastic. The country is heavily engaged in trade so that terms of trade loss can offset production gains.

36. 6 Openness to Trade Affects Growh Access to better technology (Capital goods) Competitive pressure and incentive to innovate

37. Summary Sources of growth Balanced vs biased growth Rybczynski Theorem Immiserizing growth Trade and growth