Chap' 3: Commodity Composition of Trade

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Chap. 3 Commodity Composition of Trade

• Alejandro Velez, Ph.D.
• St. Mary's Univ.

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A. Velez,Ph.D._at_1998
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Thumb Nail Sketch

• Chapter looks at factors behind comparative
  advantage and thus at whether a country exports
  planes or wine
• Scarcity and abundance of certain resources seems
  to be at the heart of comparative advantage
  (factor endowments matter Austin can become the
  next Silicon Valley whereas San Antonio cant)

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Factor Proportions Theory

• Labor-intensive vs. capital-intensive goods or
  services
• Endowments (Saudi oil) vs. Nurture (Japanese
  electronics)

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Factor Proportions Theory

• Predictions resource abundance lowers the cost
  of these resources and makes goods made with
  these resources cheaper to produce and thus
  exportableAmerican wheat, Japanese cars.
  Conversely, scarcity of a resource (say unskilled
  labor) results in its lack of competitiveness in
  the production of goods requiring a lot of these
  scarce goods (shirts and blouses) and its import
  from (unskilled) labor abundant countries such as
  China or Mexico.

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Factor Proportions Theory

• Also, models predict certain flows of capital
  (FDI) from capital abundant to capital-starved
  countries and labor from low wage countries or
  regions to their opposite.

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Factor Proportions Theory Empirical Evidence

• Leontiefs work
• Findings
• Defenses?
• Distortions?

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Alternative Theories

• Product Life Cycle
• Role of Human Skills, Learning, Nurturing
• Product Differentiation as a basis for
  comparative advantage
• Intra-industry Trade (ITT) -- Dont laugh it got
  me tenure

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Michael Porters DiamondHarvard U. Bus. School
Find and read websites
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State of Thinking Today

• Role of the State
• The Global Compettiveness Report, 1999, 2000
• Find and read websites

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Personal, Political, Ethical Aspects

• Comments?

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