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International economics ECON-370 - Assignment Example

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Name: Tutor: Course: Date: INTERNATIONAL ECONOMICS 1. (a). The Grubel-Llyod index measures trade in a particular industry by using the following formula: Where Xi denotes exports of a good i. Mi denotes imports of a good i. Let GL1 represent automotives and GL2 represent Aircraft…
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International economics ECON-370
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International economics ECON-370

Download file to see previous pages... By definition, intra-industry trade arises when a country imports and exports related types of goods or services simultaneously. Considering two countries as an example, Germany and France, if Germany exports cars to France and simultaneously imports cars from England, then intra-industry trade occurs. (b). When the US imports the labor-intensive parts and not finished goods and exports the capital-intensive finished cars, then this would be a clear indication of intra-industry trade whereby the country will be acting simultaneously in the imports and exports of the same product. This scenario is similar to that of the example of Germany discussed in part (a) above. The finding that imports are labor intensive means that most individuals won’t be employed in the US as the imported goods come when they are already near finish. Nothing much is done on them. Capital intensive exports on the other hand means that we send a lot of employment opportunities outside of the country hence we create jobs outside and not inside the US. In my view, such a situation due to trade will lead to job displacement. 2. (a). A country is capital-abundant if its endowment of capital is more compared to other …. ...
labor-intensive because its price in the labor-abundant country will lead to a bid price that is lower relatively to the price of that good in the country. Therefore, a capital-abundant country will export the capital-intensive good because its capital endowment is large compared to other countries, and the labor-abundant country will export the labor-intensive good. From this illustration, US is the capital-intensive country while EA are labor-intensive. US has less workers as compared to EA. This is in line with promoting trade between countries. (b). (c). In Stopper-Samuealson is’s a heory states that a “rise in the comparative price of a good raises the relative price of the factor used intensively in its production. Opening trade between countries will increase the award to the abundant factor and lower the reward of the scarce factor.this theory clarifies one reason for the controversy about free trade (Krugman et al 75). The US is expected to be the loser as this theory advocates that the relative factor endowments ; creating incentives for owners, nothing ever happened to support free trade. The EA on the other hand, are expected to gain since they are labor-intensive. On the other hand, since production of each good involves using different proportions for individual. Changing output combination altrers relative demand for the goods produced in both countries. Trade liberalization of trade leads to more inequality. (d), when there is no free trade and labor can migrate fully, from one country to another. at intra-industry Trade, the simultaneous import and export of goods for trade. Migration of workers is based on whether a country is capital –intensive or capital extensive. If capital intensive then workers will migrate from it to the labor intensive ...Download file to see next pagesRead More
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