Answer all the questions below, in the spaces provided.  The possible points total 47;  your score will be multiplied by 0532  to yield your points (of 25) toward the quarter’s total of 100.
 

SHORT  ANSWER:
1.  [2 points]  What are the three largest manufacturing countries in the world?  (Put them in declining order, but I won’t grade on the order).  Underline the one which is was not on this list 40 years ago.

2.  [1 point]  Which three countries have the largest stock of foreign direct investment (FDI) in other countries?

3. [5 points]  Briefly define each of the following trade barriers, sufficiently to distinguish them.

tariff or duty
countervailing duty
quota
discriminatory procurement
dumping

Questions 4-5 refer to the table below.
4.  [8 points]  In what row of this table (not 71-76) would each of the following transactions be represented, and would it make that row more positive or more negative?  (Give the most detailed row possible:  for example, Row 4 is more detailed than Row 1).

a)  Nike takes delivery of shoes from a Philippines contractor.

b) A UW student gets $1000 from her parents in Hong Kong.
 

c) Microsoft invests some of its cash to buy a controlling stake in a UK startup firm.

d) A Tokyo investment group sells its interest in Rockefeller Center (New York).

e) Boeing delivers an airplane to Japan Airlines.

f) Prof. Harrington spends two nights in a hotel in Vancouver BC.

g) British Telecomm receives $1 million in profits from its US subsidiary.

h) Your parents in Seattle receive $2,000 in rental income from a condo they own in Whistler, BC.

5.  [2 point]  How is Row 70 calculated?  This shows the key relationship in this table – what is that?
 

BRIEF  ESSAYS:
6.  [8 points]  Provide an overview of basic, neoclassical trade theory (use an outline or essay format, as you prefer).  Because it’s a normative theory, an explicit goal is assumed – what is it?  Because it is a deductive theory, it starts with a set of assumptions, what are the key assumptions about resources, products, and technology?  Overall, what’s its prescription for national economies?  [In the course of the essay, be sure to explain the principles of absolute advantage, comparative advantage, and the theory of factor proportions].
 

7.  [8 points]  Write an essay on the gains from trade, as we have discussed them, at three scales:
• the basic gains to the trading system as a whole when countries specialize and trade – why should the system benefit?
• What determines of how two trading partners divide the gains from trade?
• Regarding the division of the gains from trade among the stakeholders within a given country, if a country moves from autarky to free trade (but not international factor mobility), who gains and who loses?
You’ll probably find this formula useful:  G₁ = (b₂/a₁)(C₂/C₁) – a₁/b₁

8.  [8 points]  What was the “Leontief paradox,” and why is it paradoxical?  What are three potential ways to explain the paradox?  How does Vernon’s product life cycle model of international trade and investment help explain the paradox?  But in the process of doing so, what two assumptions of basic trade theory does the product cycle model contradict?
 

9.  [5 points]  Michael Porter defines “competitive advantage” as the set of activities in which enterprises based in a country tend to have the ability to produce consistently at lower cost, higher quality, or greater customization most foreign competitors.  Note that this definition recognizes that most trade is indeed between companies, but that these companies are based in countries that have particular characteristics.  Porter attributes the competitive advantage of a nation to what four characteristics?  (The precise names are not important:  make it clear that you understand what these characteristics are).  How does this "diamond" compare to the theory of factor proportions?