International Economics By Robert J. Carbaugh 9th Edition

1. International EconomicsBy Robert J. Carbaugh9th Edition Chapter 4: Trade Model Extensions and Applications

2. PENDAHULUAN • BAB 3 – PAB berlaku disebabkan perbezaan harga relatif antara negara • BABA 4 • Menerangkan mengapa wujud perbezaan harga relatif antara negara • Peranan kos pengnagkutan dan implikasi terhadap corak/aliran PAB • Economies of scale & specialization Carbaugh, Chap. 4

3. MODEL RICARDO • Tidak menjelaskan alasan perbezaan KKP antara negara atau punca FB • FB bergantung kepada perbezaan relatif produktiviti buruh (perbezaan teknologi) • Andaian 1 input (L) – ruled out penjelasan bagaimana PAB mempengaruhi pengagihan pendapatan dalam negara yang terlibat dengan PAB. Carbaugh, Chap. 4

4. Why relative price differentials? Factor endowment theory (Heckscher-Ohlin) • Menjawab persoalan: • Apa yang menentukan FB (Comparative advantage) • Kesan PAB terhadap pendapatan/perolehan input – pengagihan pendapatan Carbaugh, Chap. 4

5. Why relative price differentials? Factor endowment theory (Heckscher-Ohlin) • Comparative advantage is explained entirely by different national supply conditions, especially resource endowments – SS side • E.g: ???? • Nations export products that use inputs which are relatively abundant (cheap) at home, and import products which need inputs which are relatively scarce (expensive) at home Carbaugh, Chap. 4

6. Why relative price differentials? Factor endowment theory: assumptions • Nations all have the same tastes and preferences (same indifference curves) • They use factor inputs which are of uniform quality • They all use the same technology Carbaugh, Chap. 4

7. Factor endowment model Comparative advantage according to factor endowment theory Autarky equilibrium Carbaugh, Chap. 4

8. Factor endowment model Comparative advantage according to factor endowment theory Post-trade equilibrium Carbaugh, Chap. 4

9. Perbezaan harga relatif disebabkan oleh: • Negara mempunyai anugerah faktor yang secara relatifnya berbeza • Pengeluaran barangan memerlukan keamatan (intensiti) faktor yang berbeza Carbaugh, Chap. 4

10. Factor endowment model Factor endowment theory: implications • Factor price equalization • The shift within each nation towards use of cheaper factors, and away from expensive ones, leads to more equal factor prices (if factors are mobile) • Output expanding in its comparative-advantage industries which uses a lot of cheap, abundant factor -> rise in demand -> its prices increase • Output reducing in its comparative-disadvantage industries which uses a lot of expensive -> released from the industries -> its prices falls Carbaugh, Chap. 4

11. Process occurs at the same time in both nations • Each nation experience a rise in the price of the abundant factor and a fall in the price of the scarce factor. • TRADE leads toward an equalization of relative factor price in the two trading partners. Carbaugh, Chap. 4

12. Distribution of income • Trade changes domestic distribution of income as demand for different factors changes • Affects the internal distribution of income among the owners of resources • Implikasi THO • Peningkatan DD terhadap faktor kelimpahan (abundant) meningkatkan harga (bayaran) faktor yg digunakan secara intensif dalam barang eksport • Pengurangan DD terhadap faktor kekurangan (scarce) menurunkan pulangan (bayaran) faktor yg digunakan secara intensif dalam barang import • E.g: ??? Carbaugh, Chap. 4

13. Tests of factor endowment theory • Wassily Leontief – kajian terhadap data US • The findings contradicted with prediction THO – Leontief Paradox • Emphasize the importance of varieties of different factors (such as human capital) and accounting for changes in resource endowment; other explanations are also important Carbaugh, Chap. 4

14. Bringing theory closer to reality Economies of scale & specialization • Economies of scale - ??? • Economies of scale provide incentives for specialization, since per unit costs go down as production increases • Specialization in a few products allow a manufacturer to benefit from longer production runs, which lead to lower AC • Trade provides a larger potential market for products, making higher production levels possible Carbaugh, Chap. 4

15. Economies of scale Economies of scale as basis for trade Carbaugh, Chap. 4

16. Economies of scale Trade & specialization under decreasing costs Carbaugh, Chap. 4

17. Bringing theory closer to reality Other extensions of the theory • Overlapping demands – Staffan Linder • Manufactured goods • Demand plays an important role in explaining overall trade patterns • Linder hypothesis – nations with similar per capita incomes will have overlapping demands structures and likely consume similar types of manufactured goods. Carbaugh, Chap. 4

18. Bringing theory closer to reality Other extensions of the theory • Intra-industry trade – two-way trade in similar commodity • Homogenous goods • transportation cost • Seasonal • Differentiated goods Carbaugh, Chap. 4

19. Bringing theory closer to reality Other extensions of the theory • Product cycles • Focuses on the role of technological innovation as a key determinant of trade patterns in manufactured products • Stages • Introduced to home market • Export strength • Foreign production • Lose competitive advantage • Import competition begin Carbaugh, Chap. 4