International Trade Problem Set October 14, 2016

International TradeProblem Set 1october 14 2016this Problem Set Is Du

This problem set involves analyzing various aspects of international trade using models of comparative advantage, productivity, and utility. It includes evaluating statements about globalization, trade effects, and equilibrium conditions; calculating autarky prices and consumption; examining trade patterns and gains; and considering changes in productivity and employment in a dynamic context.

Paper For Above instruction

International trade theory provides essential insights into how countries interact through the exchange of goods and services, guided by differences in productivity, preferences, and resources. This problem set explores foundational concepts such as comparative advantage, welfare effects of trade, and the determination of relative prices, employing a two-country model with specific productivity and endowment parameters.

First, the set presents several conceptual statements about globalization and trade to evaluate their validity—whether global integration has increased steadily among developed economies, whether trade always improves welfare, and the implications of identical versus differentiated preferences and endowments. These questions prompt a critical understanding of the assumptions and conclusions inherent in standard trade models.

Subsequently, the set introduces a detailed quantitative exercise involving two economies—Home and Foreign—each with their own labor force producing food and clothing under specific productivity levels. By calculating the autarky relative prices based on Cobb-Douglas preferences and productivity, students determine the consumption possibilities for each type of worker, both domestically and under free trade. The analysis extends to comparing income and consumption levels across countries, identifying which sectors will export and import, and assessing welfare changes resulting from trade liberalization.

Furthermore, the exercise examines the impact on representative families, consolidating individual worker benefits and analyzing how changes in productivity influence trade patterns and welfare distribution. The problem also considers hypothetical productivity escalations and their implications for trade roles, distributional effects, and the strategic adaptation of workers between industries over the long term, thus integrating static and dynamic perspectives of international economics.

References

  • Krugman, P. R., & Obstfeld, M. (2009). International Economics: Theory and Policy. Pearson.
  • Melitz, M. J. (2003). The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica, 71(6), 1695–1725.
  • Helpman, E., & Krugman, P. R. (1985). Market Structure and Foreign Trade. MIT Press.
  • Caves, R. E., Frankel, J. A., & Jones, R. W. (2011). World Trade and Payments: An Introduction. Pearson.
  • Bernard, A. B., & Jensen, J. B. (1999). Exceptional exporter performance: Cause, effect, or coincidence? Journal of International Economics, 47(1), 1–25.
  • Deardorff, A. V. (2004). Distance, protection, and the pattern of trade. The Review of Economics and Statistics, 86(2), 416–430.
  • Helpman, E., Melitz, M. J., & Yeaple, S. R. (2004). Export versus FDI with heterogenous firms. American Economic Review, 94(1), 300–316.
  • Feenstra, R. C., & Taylor, A. M. (2014). International Trade. worth Publishers.
  • Grossman, G. M., & Helpman, E. (1991). Innovation and Growth in the Global Economy. MIT Press.
  • Harrison, G. W., & Rutström, E. E. (2008). Experimental Evidence on the existence ofーム reference-dependent preferences. Journal of Economic Perspectives, 22(2), 203–222.

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