PLSC 440 Exam 2

factor of production

a resource used to produce goods and services

Stolper-Samuelson theorem

international trade increases the real income of the owners of a country's abundant factors of production (such as workers in a labor-abundant country) while decreasing the real income of owners of its scarce factors.

The Ricardo-Viner model

trade benefits workers and owners in industries that export goods, while hurting those in industries that compete with imports.

three main factors of production

land, labor, capital

Factor endowment

The amount and availability factors of production within a country.

factor endowment advanced economy land-labor ratio high

Abundant: Capital, land

Scare: labor

factor endowment advanced economy land-labor ratio low

Abundant: Capital, labor

Scare: land

factor endowment backward economy land-labor ratio high

Abundant: land

Scare: labor, capital

factor endowment backward economy land-labor ratio low

Abundant: Labor

Scarce: land, capital

The key difference between the Stolper-Samuelson theorem and the Ricardo-Viner model

how easily factors of production (labor, capital, and land) can move between industries.

Predicted effects of expanding exposure to trade: advanced economy land-labor ratio high

Class Cleavage: land and capital free-trading assertive

labor, defensive protectionist

Predicted effects of expanding exposure to trade: advanced economy land-labor ratio low

Urban-Rural cleavage: labor and capital free-trading assertive

land, defensive protectionist

Predicted effects of expanding exposure to trade: backwards economy land-labor ratio high

Urban-Rural cleavage: land, free-trading assertive

Capital and labor, defensive protectionist

Predicted effects of expanding exposure to trade: backwards economy land-labor ratio low

Class Cleavage: labor, free trading assertive

Capital and land, defensive protectionist

Exporting industries

industries that produce goods and services to sell to other countries

Import-competing industries

Industries that produce goods domestically but compete against similar products imported from other countries

Predicted effects of declining exposure to trade: Advanced Economy land-labor ratio high

Class cleavage: labor gains power

land and capitol lose power

Predicted effects of declining exposure to trade: Advanced Economy land-labor ratio low

Urban-Rural cleavage: land gains power

labor and capital lose power

Predicted effects of declining exposure to trade: Backwards Economy land-labor ratio high

Urban-Rural cleavage: capital and labor gain power

land loses power

Predicted effects of declining exposure to trade: Backwards Economy land-labor ratio low

Class cleavage: land and captial gain power

labor loses power

failure of the international financial market (Wade)

large inflows of foreign money encouraged excessive borrowing and risky investments in Thailand, creating an unstable financial situation. When foreign investors realized this they pulled their money out.

failure of the Asian governance

The East Asian Financial Crisis was caused by poor domestic government oversight and financial management. Governments failed to properly regulate banks, allowing corruption, politically connected lending, excessive borrowing, and risky investments to develop.

why financial crisis diffused?

Investors saw similarities between other East Asian economies and Thailand fearing that problems in one country could occur in others. This caused widespread withdrawals of foreign investment, even from countries that had not initially experienced the same crisis.

what do IMF conditionalities often include?

Cutting government spending, Stabilizing currencies and controlling inflation, Privatizing state-owned businesses and liberalizing markets, Restructuring banks and improving financial regulation