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Economic Growth & International Trade

CHAPTER 4. Economic Growth & International Trade. Economic growth & IT. Economic growth effect on IT Production effect Consumption effect Economic growth effect Technical progress & IT Different types of economic growth & IT Importation substitution Exportation expansion.

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Economic Growth & International Trade

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  1. CHAPTER 4 Economic Growth & International Trade

  2. Economic growth & IT • Economic growth effect on IT • Production effect • Consumption effect • Economic growth effect • Technical progress & IT • Different types of economic growth & IT • Importation substitution • Exportation expansion

  3. Economic growth • Conception: • Because of the factors increase or technical progress, the quantities of goods increase or the qualities of goods improve, which lead to the national income (NI) grow. • Presentation: • Expansion of the Production Probabilities Frontier (PPF)

  4. Y Ⅲ T’ IV T I A II X T T’ O Production effect (X: exportable; Y: importable) After growth, new production point is: on OA line: Neutral-Trade Production Effect; in Area I: Protrade PE; in Area II: Ultra-Protrade PE; in Area III: Antitrade PE; in Area IV: Ultra-Antitrade PE.

  5. Area Name e* Effect on trade Trade & Economic growth OA line Neutral-Trade e=1 ΔE=ΔI Δtrade= ΔNI I Protrade 0<e<1 ΔE>ΔI Δ trade>ΔNI II Ultra-Protrade e<0 ΔE>0, ΔI<0 Δtrade>>ΔNI III Anti-trade e>1 ΔE<ΔI Δtrade<ΔNI IV Ultra-Antitrade e>>1 ΔE<0, ΔI>0 Δtrade<0, ΔNI>0 Production effect e*: Import supply income elasticity

  6. M’ Y M Ⅳ Ⅲ Ⅰ B Ⅱ X O Consumption effect (X: exportable; Y: importable) After growth, new consumption point is: on OB line: Neutral-Trade Consumption Effect; in Area I: Antitrade CE; in Area II: Ultra-Antitrade CE; in Area III: Protrade CE; in Area IV: Ultra-Protrade CE.

  7. Area Name e* Effect on trade Trade & Economic growth OB line Neutral-Trade e=1 ΔE=ΔI Δtrade= ΔNI I Anti-trade 0<e<1 ΔE>ΔI Δ trade<ΔNI II Ultra-Antitrade e<0 ΔE>0, ΔI<0 Δtrade<0, ΔNI>0 III Protrade e>1 ΔE<ΔI Δtrade>ΔNI IV Ultra-Protrade e>>1 ΔE<0, ΔI>0 Δtrade>>ΔNI Consumption effect e*: Import demand income elasticity

  8. Ultra-Protrade Protrade Neutral-Trade Anti-trade Ultra-Antitrade Ultra-Protrade Ultra EG Ultra EG Ultra EG Non-anti EG Not Certain Protrade Ultra EG Ultra EG Ultra EG Not Certain Anti EG TE CE Neutral-Trade PE Ultra EG Ultra EG Neutral Non-ultra EG Anti EG Anti-trade Non-anti EG Not Certain Non-ultra EG Non-ultra EG Anti EG Ultra-Antitrade Not Certain Anti EG Anti EG Anti EG Anti EG Economic growth effect

  9. Some examples:Protrade PE + Neutral trade CE Protrade PE and Neutral trade CE lead to trade expansion larger than economic growth, ie, ultra-economic growth. B’ Y B A’ A R R’ X 0

  10. Some examples:Protrade PE + Protrade CE B’ Protrade PE and Protrade CE lead to trade expansion larger than economic growth, ie, ultra-economic growth. Y B R’ A A’ R 0 X

  11. Some examples:Ultra-antitrade PE + Ultra-antitrade CE Y Ultra-antitrade PE and Ultra-antitrade CE lead to trade contraction with economic growth, ie, anti-economic growth. B B’ A’ R’ R A X 0

  12. Technical progress & IT • Three types of TG • Neutral Technical Progress • Labor Saving Technical Progress • Capital Saving Technical Progress • Production effect of TG

  13. K E E' O L Neutral Technical Progress （K’/L’）＝（K/L）

  14. K E E' O L Labor Saving Technical Progress （K’/L’）>（K/L）

  15. K E E' O L Capital Saving Technical Progress （K’/L’）<（K/L）

  16. Production effect of TG I: Same degree NTG in both products II: NTG only in labor-intensive product III: NTG only in capital-intensive product X: labor-intensive Y: capital-intensive

  17. Importation substitution Economic growth • Conception: • Importable goods sector grow faster to substitute importations, which lead to anti-trade effect. • Models and welfare effects • Small country • Big country

  18. Small country Production: AA’ (Rybczyski Theorem) Consumption: BB’ (welfare benefit) Trade triangle: ABRA’B’R’ (anti-trade effect) X: exportable Y: importable price (TOT) not change Y B’ B A’ R’ R A X O

  19. Big country Production: AA” (not certain) Consumption: BB” (welfare benefit, larger than small country) Trade triangle: ABRA”B”R” (not certain) price of Y decrease (TOT improve) Y B” B’ B R” A” R A X O

  20. Exportation Expansion Economic growth • Conception: • Exportable goods sector grow faster to expand exportations, which lead to pro-trade effect. • Models and welfare effects • Small country • Big country

  21. Small country Production: AA’ (Rybczyski Theorem) Consumption: BB’ (welfare benefit) Trade triangle: ABRA’B’R’ (pro-trade effect) X: exportable Y: importable price (TOT) not change Y B’ B A R R’ A’ O X

  22. Big country Production: AA” (not certain) Consumption: BB” (welfare benefit, less than small country) Trade triangle: ABRA”B”R” (not certain) price of X decrease (TOT worsen) Y B’ B” B A” R A R” O X

  23. Immiserizing Growth TOT seriously worsen Y Production: AA’ (both X & Y’s productions increase ) Consumption: BB’ (both X & Y’s consumptions decrease; welfare loss) B TOT’ B’ A’ A TOT X

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