Take a look at the first
test for this course, last Spring Quarter.
MACROECONOMIC
PERSPECTIVES
Understand the relationships between current-account and capital-account
balances. How do different types of international transactions appear
on table of international transactions? Be able to make use
of the relationships GDP = C + I + G + X - M and S - I = X -
M, if these simple formulas are given to you.
How would you define "globalization"? What themes came up in our class discussion? How does Harrington define globalization?
Be able to provide a brief overview of empirical trends in Canadian
international trade and investment, especially with the United States.
MICROECONOMIC
PERSPECTIVES
Why might companies engage in international business?
BASIC
TRADE THEORY
Be able to write an essay that presents the principal components of
the basic, neoclassical theory of trade: comparative advantage,
factor-proportions
theory, the sources of system-wide gains from trade (having
to do with both the match between factor requirements and factor
endowments and the benefits of specialization), the influences on
the division of the gains from trade between the two trading partners.
(Don't bother to memorize the formula G1 = (a1/b2)(C2/C1)
- a1/b1, but do be able to interpret it
and use it if it's given to you). What strong assumptions
underlie this basic theory: regarding the goal of economic activity,
the mobility of factors and products, the mobility and stability of production
technology?
Be able to distinguish the principles of absolute and comparative advantage. How have I suggested that comparative advantage may develop over time? How does this compare to the "trade traps" that I've briefly presented?
What is the Leontief paradox? Understand at least three important ways of explaining the paradox (including factor-intensity reversal and human-skills theory).
How does the product life cycle of international trade and investment try to explain the Leontief paradox? How does it modify the assumptions of basic trade theory (see above)?
The Kletzer reading and our 20 April lecture/discussion suggest the intra-national distribution of gains and losses as a country moves from autarky to open trade, a way to compensate for the losses, and the difficulties in doing that. What are these considerations? Why should open trade of products lead toward factor-price equalization (what does that mean?), even if factors of production are immobile internationally?
How does Kletzer explain intra-industry trade (bilateral trade
of products in the same industry, which presumably use the same mix of
inputs)?
COMPETITIVENESS
If most trade is actually conducted by companies rather than countries
or national governments, and if the two key production factors of capital
and technology are internationally mobile (contrary to the assumptions
of our most basic trade model), then what are some of the things that distinguish
nations and create comparative advantage?
Distinguish the concepts: comparative advantage, revealed comparative advantage, competitive advantage (of a company ("enterprise") and of a country), and competitiveness.
Michael Porter attributes the competitive advantage of a nation to what four characteristics? How does this "diamond" compare to the theory of factor proportions?
How did Porter see the basis for national competitive advantage changing
over time, with increased wealth? How does this compare to the "trade
traps" that I've briefly presented?
CANADA: A TRADE-DEPENDENT ECONOMY
What are some of the developmental and regional implications of Canada's
historic dependence on materials exporting? How have Canadian policies
managed, and to some extent overcome, this historic dependence? [Barnes
chapter; Britton chapter; 22 April discussion]
On 22 April we broke into small groups, each of which discussed the following scenario. Be able to write thoughtfully and creatively about this scenario and what steps should be taken. There is no single "right answer."
Scenario: a country that is geographically large, low population density, resource rich (relative to its potential trading partners), labor scarce (ditto), capital scarce (ditto), with moderate GDP per capita.
Goal: maximize GDP per capita
Possible tools: free trade, capital inflows, inward FDI (how to encourage?), outward FDI (how to encourage?), import substution, export promotion (how to implement?), immigration policy, government investment policy (how financed?)
Consider: basic trade theory, the complications we've discussed, short-run versus long-run effects, the interconnections between one action and all its consequences.