Econ 4040 Exam 1

The current process of increasing economic integration among national economies, better known as globalization

is actually the worlds 2nd wave of such integration

In 2013, total world exports were estimated to be x percent of world GDP

30

Which is not an example of international factor movement

international trade in intermediate goods

What is an example of international factor movement

Direct foreign investment, International borrowing and lending, labor migration

Which of the following is not among the measure economists examine to assess the degree of globalization and international economic integration

Number and complexity of trade agreements

Compared to a century ago, the US economy today appears more integrated with the world economy as signified by its increased

trade-to-GDP ratio

An indicator that today the u.s. economy is less integrated with the world than it was a century ago is its reduced proportion of

foreign-born citizens

How is a trade to GDP ration computed

(Exports + Imports) / GDP

Which is not one of the 3 kinds of evidence economists use to support the assertion that open economies grow faster than economies that are closed to the world economy

Forensic analysis of the growth equation

Countries with the same background that were divided by war indicate that those who closed their economies from the rest of the world suffered

Casual empirical evidence of historical experience

Open trade fosters competition, innovation, and learning by doing and brings international best practices to the attention of domestic producers, spurring greater efficiency, export expansion, and economic growth

Economic logic and deductive reasoning

Statistical tests of the relationship between trade policy and economic growth yield results that consistently show that more open economies grow more rapidly

Evidence of statistical comparisons of countries

How is current day trade different than earlier trade?

The fraction of current international trade is organized and conducted by multinational firms has grown since 1950. & The share of manufacturing trade has risen while the share of agricultural trade has fallen

The International Monetary Fund, the World Bank, the General Agreement on Tariffs and Trade were formed

after World War II

A key institution that did not directly arise from post-WWII negotiations was the

WTO

Example of foreign direct investment

building a starbucks shop in canada

Top 5 countries for merchandise exports in 2017

China, US, Germany, Japan, Netherlands

Top 5 countries for merchandise imports in 2017

US, China, Germany, Japan, United Kingdom

Which developing country had the highest growth in intellectual property services in 2017

Singapore

Between 2012-2017, what year did the volume of world merchandise exports fall

none

Between 2012-2017, what year did the value of world merchandise exports fall

2015, 2016

Assists national governments with necessary but difficult reorganizations

International Monetary Fund

Makes technical expertise and advice available to developing nations

World Bank

Provides rules for the resolution of trade disputes between nations

World Trade Organization

Provides technical expertise and advice to national govts

international monetary fund

Acts as a lender of last resort in the case of debt or foreign exchange crisis

International Monetary Fund

The GATT was

an international treaty governing trade.

Which is not an immediate result of Bretton Woods Agreement

Creation off the Marshall Plan

What is the relationship between GATT and WTO

WTO continues and expands the efforts of GATT

IMF quotas refer to

Membership fee paid by countries

when are regional trade agreements welfare-improving

when they lead to net trade creation

President of the world bank in 2019

David Malpass

Which of the following doesn't tend to promote the probability of trade volumes between two countries

the ability to produce more than another country

Opportunity Cost

the value of the next best alternative occurring as a result of making a particular choice

The potential for gains from the rearrangement among countries is due to

differing opportunity costs

Mercantilism advocated that a country

promote exports over imports because it viewed trade as zero sum

Which economic theory requires a positive balance of trade (exports>imports) in order for a country's standard of living to improve?

Mercantilism

What determines the slope of a trade partners PPF

opportunity cost

What determines the slope of the trade line

exchange price

Issues of Concern

-Gains from trade
-Patterns of Trade
-Protectionism
-Balance of Payments
-Protectionism
-Balance of Payments
-Exchange Rate Determination
-International Policy Coordination
-International Capital Mkts

When did international trade rise?

1830-1910, 1995-present

When did international trade fall?

1950

When does GDP rise?

When exports of goods and services rise

Anti Globalization

Economists are united in the belief that trade is beneficial, but everyone else isnt

Size

Volume of imports and exports are directly related to the size of the economy

Distance

Distance between markets influence transportation costs and costs of trade

Cultural Affinity

If 2 countries have cultural ties, they usually also have strong economic ties

Geography

Ocean harbors, and lack of mountain barriers make transportation and trade easier

Multinational Corporation

Corporations spread across different nations import and export many goods between their divisions

Borders

Crossing borders involves both monetary and non-monetary costs

The Gravity Model

Larger economies produce more goods and services so they have more to sell & have more purchasing power so theyre able to buy more

Trade Agreements

intended to reduce formalities and tariffs needed tot cross borders and increase trade

NAFTA

US signed a free trade agreement with Mexico and Canada. Renegotiated as USMCA
Borders make it hard to trade with Canada

Degree of interconnectedness between nations is measured by

physical trade flows, labor flaws, price similarities across markets, financial and physical capital flows

Service Outsourcing

when a firm that provides services moves its operations to a foreign location

Globalization Waves

1840-1914: economies relied on steam power, railroads, telegraph and telephones.
1945-now: economies rely on technology

New Era of Trade

Rapid technological trade, business and financial sector innovation, trade policy liberalization, widespread protests against immigration

Institutions

rules and organizations that govern and constrain behavior

Commodity Organizations

industry specific org. ranges from trade associations to powerful cartels

Resource Management Agencies

Commissions and agencies for managing shared resources

Development Funds

Inter-American Development Bank, US-Israel FTA

Founding Fathers of Bretton Woods

John Maynard Keynes, Harry Dexter White

Bretton Woods

July 1944, 44 nations met to consider post war financial stability,

Outcomes of Bretton Woods

IMF, World Bank, Modified Gold Standard, GATT, NO ITO

IMF

190 member countries, International Lender of Last Resorts, Financed by quotas

IMF Roles

Lending, Surveillance-monitors IMS and global economic developments to identify risks and recommend policies, Capacity Development-provide technical assistance and training to govts on taxation and operations

World Bank

Financial and technical assistance to developing countries. Low interest rates and interest free credits

General Agreement on Tariffs and Trade

Lowers trade barriers, Supplemented by WTO in 1993 in Uruguay Round, General strategy to free trade, Binding, Prevent non-tariff interventions in trade. First Round

Uruguay Round

1986-1993, most ambitious round, reformed tariffs and subsidies on agriculture and textiles. Created WTO

Doha Round

2001, failed to produce agreement

WTO

helps trade flow freely, deals with rules of trade at global level. negotiation forum, place to settle disputes

How does WTO address trade

Reduction of trade through negotiations, Binding- tariffs are bound by country's agreement. Prevention of non-tariff barriers- quotas and export subsidies are changed to tariffs

International Institution Pros

Create order, reduce uncertainty, overcome free-rider problem, effectiveness ultimately depends on individual commitment

International Institutions Cons

National Sovereignty, Transparency, Ideology, Asymmetric implementation and adjustment costs

Partial trade agreement

2 or more countries liberalize trade in a selected group of product categories (Canada-US Auto Pact)

Free Trade Area

Trade in goods and services is fully liberalized b/w 2 or more countries

Customs Union

A Free trade area plus is common external tariff

Common market

a customs union plus free mobility of factors of production

Economic Union

Common market with coordination of macroeconomic policies

Preferential Trading Agreements

Trade agreements between countries where they lower tariffs for each other but not for the rest of the world. possible that national welfare decreases

Trade Creation

occurs when high cost domestic production is replaced by low cost imports from other members

Trade Diversion

occurs when low cost imports from non-members are diverted to high cost imports from member nations

Mercantilism

I gain at your expense

Modern Trade Theory 1st Gen Model

Differences in labor, labor skills, physical capital, and technology create productive advantages for countries. based on neoclassical framework. The ricardian model

Modern Trade Theory 2nd Gen Model

Economies of scale and geography create productive advantages for countries. Based on imperfect competition and theory of industrial organization. H-O Model

Modern Trade Theory 3rd Gen Model

Market size and distance between markets determine how much countries buy and sell. The Gravity Model

Ricardian Model

2 countries, 2 goods, labor is only input and is perfectly mobile. too extreme. Smith and Ricardo

Heckschner-Ohlin Model of Trade Founder

Dr. Bertil Ohlin

H-O Model

Trade occurs bc countries have different resources and a country's comparative is based on its factor endowment rather than differences in technology

H-O Theorem

Countries export goods that utilize their abundant factors of production and import products that utilize countries scarce factors. Not every factor of production benefitts

Stopler-Samuelson Theorem

Owners of a country's abundant factors gain from trade but owners of a country's scarce factors lose

Who did the first empirical test of H-O model

Wasily leontief