CHAPTER 5

1. What are the major factors that contributed to productivity gains in agriculture in
Asia in the past twenty-five years? Is the rate of growth of the agricultural sector
likely to slow down or accelerate? Reflect on how these factors are likely to change in
the future.
-The major factors that contributed to agriculture in Asia are the Green revolution,
increased yields from higher yielding varieties, application of fertilizers, pesticides,
and herbicides and extensive irrigation; It would likely accelerate if this will be
maintained and further notice to put into importance in the agricultural sector;
These factors will likely change for innovation or improvement in developing
productivity gains.
2. There has been considerable discussion of the role of mechanization in creating
employment and raising labor productivity. Are there any general guidelines to follow
in suggesting a mechanization policy for the Asian developing countries?
- General guidelines of the mechanization policy are not elaborated.
Mechanization could increase productivity and boost agricultural and food
production with the use of equipment and machineries but this decision is left in
the Asian developing countries whether to mechanize or not.
3. Consider two countries, one that subsidizes agriculture, and another that subsidizes
industry. They are identical in all other respects. Which country has a better chance of
achieving rapid growth with poverty reduction?
- In my opinion, both countries can possibly achieve rapid growth. It depends on
how they would handle certain factors such as the adaptability of technological
changes, considering innovation, maximization of resources available,
controlling the inflow and outflow of resources and implementation of
economic strategies and policies that would benefit the country.
4. Why are the terms of trade between agriculture and industry so important in
determining the rate of growth of an economy in the transition from focusing on
agriculture to manufactured products?
- The trade between agriculture and industry are complementary to each
other in determining the growth of economy. Interdependence between
agriculture and industry becomes strengthened through various linkages generated
in these two sectors.
Production linkages arise from the interdependence between agriculture
and industry through the use of productive inputs. Production linkages arise from
the interdependence between agriculture and industry through the use of
productive inputs. Demand linkages between the two sectors suggest that demand
for one sector’s product pulls demand for another sector in an upward
direction. Finally, there is a savings-investment linkage between these two sectors.
A self-reliant agriculture capable of exporting surplus food-grains helps in saving
 scarce foreign exchange resources of the country. Now these resources can be
better utilized for importing capital goods and crucial raw materials needed for
industrialization effort. -Agriculture and Industry in Economic Growth
5. Genetically modified crops (corn, for example) have been developed in the United
States and are being exported around the world. There is, however, resistance to
these exports in many countries. Why do you suppose this is so?
- The labeling of GM crops is mandatory in many countries (such as China, EU,
Russia, Australia, New Zealand, Brazil, Israel, Saudi Arabia, Korea, Chile, Philippines,
Indonesia, Thailand), whereas in Canada, Hong Kong, USA, South Africa, and
Argentina voluntary labeling schemes operate. The rapid adoption of GM crops has
increased controversies, and mitigating these issues pertaining to the
implementation of effective regulatory measures for the detection of GM crops is
essential. DNA-based detection methods have been successfully employed, while
the whole genome sequencing using next-generation sequencing (NGS)
technologies provides an advanced means for detecting genetically modified
organisms and foods/feeds in GM crops. 
Source: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5495694/
6. Africa seems to be located in a cycle of producing agricultural products for export.
The terms of trade for these goods continue to deteriorate. Creating a downward
cycle of slow or negative growth. How has Asia avoided such a cycle? What are the
major factors involved?
- Recent export growth in Africa has been offset by even larger growth in
imports, caused by a booming population. This has led to a deterioration of
Africa’s trade balance. Asia have adopted structural reforms and increased its
resilience against economic shocks coming from outside the region. Meaningful
reforms have led to enhanced competition, creating a deeper and more liquid
market place.
7. You are having a discussion with another student who says that agricultural growth is
not important when it comes to understanding the experience of economic
development in Asia. How would you respond to this statement? What kind of
evidence is there to either support or refute the student’s statement? Use specific
country or regional examples where possible.
- “It is seen that increased agricultural output and productivity tend to contribute
substantially to an overall economic development of the country, it will be
rational and appropriate to place greater emphasis on further development of
the agricultural sector.” (Pragyandeepa, n.d.). England has a clear evidence on
their agricultural revolution which preceded the industrial. With support
according to Prof. Mark Overton, this revolution occurred in three major
changes: the selective breeding of livestock; the removal of common property
rights to land; and new systems of cropping, involving turnips and clover. Also
 leading in increased labor and land production. By having agricultural practices,
it will support the primary needs of the people.
8. What changes have been occurring in the structure of agriculture in Asia in the past
two decades? How are these changes likely to affect the behavior of farmers?
- There are changes in farming practices for the past two decades, higher
productivity on farms, commercially orients farming, and strengthening the
integration between farming and other sectors of the economy. The farm input
industry has changed to meet the increased reliance on fertilizers and
machineries. The food processing sector evolved with new technologies such as
food preservation, developed more extensive irrigation, and helped farmers
generate more income.
9. Explain why research and development are much more important now than they
were a few decades ago.
- Research and development contributes to sustainability of businesses and
provides a platform for creativity and innovation to flourish in an
organization. Innovative breakthroughs have happened only because of
painstaking efforts of the R&D function. R&D becomes extremely relevant to
make an organization future ready, to equip the business with the wherewithal
required for commercialization of lab efforts through large scale production.
And there are many reasons why research and development has an essential
role to the economy (Ganapathy, 2014, para. 1, para. 2, para.14).
Nina Kryscha Grace Y. Amo
BSA1-G1
CHAPTER 6- MIDTERM EXAM
1. Assess the strengths and weaknesses of the Lewis-Fei-Ranis model of economic
growth and structural transformation. Can you think of ways to improve the model?
- The Lewis-Fei-Ranis model is developed by two economists John Fei and Gustav
Ranis, a dualism economy model also known as the Surplus Labor Model. There
was a flaw in Lewis model that it did not pay enough attention to the
importance of agricultural sector in promoting industrial growth. But Fei-Ranis
(FR) model of dual economy explains how the increased productivity in the
agricultural sector would become helpful in promoting industrial sector. In this
respect, it presents three stages whereby a UDC moves from stagnation to self-
sustained economic growth. Thus, this model is treated as an improvement over
Lewis model of unlimited supply of labor.
Source: https://economicsconcepts.com/fei_ranis_model_of_dual_economy.htm
This model ignored the role of capital and economy model as its weaknesses,
this can be further improved if these factors will be included.
2. There are two strands of thought regarding industrialization. That first says that it is
important to have a large market in order to take advantage of scale economies and
to produce efficiently at low cost. The second says that small-scale industries have
been very successful because they have been able to take advantage of shifts in
demand, innovation, and fashion because of their size. How do you reconcile these
two ideas?
- Economies of scale are an important concept for any business in any industry
and represent the cost-savings and competitive advantages larger businesses
have over smaller ones. Larger companies are able to produce more by
spreading the cost of production over a larger amount of goods (Kenton, 2019).
Small scale units can adopt lean production method, which offer better quality
and more variety at a lower cost. They can be more cost efficient when
compared to large scale units because their expenses are lower. In short, both
will be reconciled when costs are lower than production they would reach cost-
efficiency.
3. Does the answer to Question 2 have anything to do with changes in technology over
the past several decades?
- Yes, ‘What is the Role of Technology in Business?’ article stated:
Technology in business allows organizations to improve both the performance
and overall effectiveness of products, systems and services, which, in turn,
 enables businesses to expand quickly and efficiently and provide security for
businesses.  
4. The debate is over whether the rapid growth in Asia was a result of “inspiration” or
“perspiration.” What exactly does this phrase mean? Explain the arguments for both
sides. Has there been a shift in the evidence over time? If there has, what do you
think are the reasons for this shift?
- The Asian Miracle occurred in eight economies, Japan, Hong Kong, the Republic
of Korea, Singapore, Taiwan, and the newly industrializing Indonesia, Malaysia,
and Thailand referred as High Performing Asian Economies (HPAEs). It is said to
be mostly attributed to ‘perspiration’ because of the development of
government policies along with the promotion of institutional and policy
reform, strengthening of competition, promotion of the accumulation of
physical and human capital and adoption of trade liberalization. As for the shift
of evidence, it is evident that these Asian countries will be facing economic
challenges overtime but will ensure to continue their economic growth.
Source: http://economicstudents.com/2013/05/inspiration-vs-perspiration-what-
was-the-key-to-east-asias-economic-success/
5. Alice Amsden and Michela Hobday, among others, argue that the total factor
productivity debated misses the point, what exactly they are talking about?
- Alice Amsden pointed out to calculate whether a country would have a dynamic
comparative advantages for a product in a sector, the share output in the sector
should compared in the Unites states and Japan. She recommended that the mix
of industries in Asian be taken as a benchmark for comparative advantages.
6. Some writers argue that the development of the electronics industry has been a
“double- edged sword.” Explain how this reasoning goes. What are the trends for the
next few years and how will this affect the relative costs and benefits of further
intensification of production in electronics?
- In my view, as what a double-edged sword mean, the electronics industry has
both favorable and unfavorable consequences. Dependability of technology,
privacy issues, global competition, less labor opportunities and more are the
unfavorable consequences. Yet, the electronics effect in cost has a favorable
side for a business to be more efficient and cost-effective when it comes to
production.

7. Discuss the interrelationship between education and the shifts that have taken place
in industrial production in Asia over the past two or three decades. How does
comparative advantage fir into this paradigm?
 - The key issues of SMEs: access to markets, technology, human resources,
financing and information. (Mohammad, R., & Almas, H., & Arman, A. 2016, p.
37.). Which means education is essential in driving industrial development to
address these issues to further open labor opportunities, create innovation and
apply the skills learned.
8. How can state-owned enterprises (SOEs) stifle innovation? In a country with a large
SOE sector like the China or Vietnam, has it still been possible grow rapidly and to
stimulate innovation? How has this happened?
- “SOEs have grown so dominant that economists accuse them of stifling
innovation and restricting opportunities for private companies, which now
account for almost all employment growth, according to government figures.”
(Zhu, C., & Hornby, L., 2012). SOEs has been absolutely lacking in terms of
innovation, experience, investments, leadership and decision making process
yet, it was possible to grow since it gives good marketing principles and
contributed to their total factor productivity (TFP).
9. Is the motivation to migrate from rural areas to the city generally the same as the
motivation to work overseas? discuss some of the possible differences in the
variables that explain migration in these two cases.
- In my observation, there are a number of factors involved upon why people are
encouraged to transfer from another area hence, the motivation to migrate
from rural areas to urban is similar as the motivation to work overseas mainly in
terms of looking for employment opportunities to provide sufficient income.
Differences when going overseas is there is an evident higher rate of salary as
the value of other countries’ currency is higher compared domestically, benefits
are also included to that.

10. Hobday, Amsden and others with similar views have written about the
industrialization experience of countries in East Asia. What is the basic thrust of their
argument? How does their analysis impact on the current debate about the role of
China in the future growth and development trajectory of the Asian region?

- The index of export Growth for the Asian economies that is, by design heavily
influenced by the changing structure of exports. If a country changes its export
structure in the favor of products for which import growth of the world is
growing rapidly then this index will be larger than when a country export are
not responding to his shift in the world import demand. Almost countries in Asia
have swiftly to take advantage of markets that are growing rapidly, such as in
the electronics, computers and pharmaceuticals.
11. Discuss the total factor productivity question with respect to the Asian developing
economies. In the discussion, review the Krugman-Young evidence with the impact
of total factor productivity on growth and examine other evidence that has been
presented since their articles were written. If there are differences between
Krugman-Young and more recent evidence, explain why and how these differences
may have arisen.

- Young and Krugman hold that high capital accumulation rather than gains in
efficiency or technological progress has spurred growth. Nelson and Pack,
however, have recently criticized the methods of measuring technological
progress. Applying the nonparametric approach to frontier production
function determination and the Malmquist index of total factor productivity
change, the authors take up this criticism. They calculate productivity
indicators for a sample of 18 American, Asian, and European countries. For the
Tiger states, their results confirm that capital accumulation was the main
source of growth in 1960-1973, whereas they find evidence for an increasing
importance of efficiency improvements for the growth in 1973-1990.
CHAPTER 7
1. Explain why the assumptions of the Ricardian model of international trade are not
particularly realistic. Why do we study this model if the assumptions are not realistic?
- The Ricardian model, focuses on comparative advantage with its basic
assumption that countries produce goods with only one factor of production,
which is labor. It is not realistic since, in the model, each market is assumed to
be perfectly competitive when in reality there are many industries in which
firms have market power. Labor productivity is assumed to be fixed when in
actuality it changes over time, full employment is assumed when clearly workers
cannot immediately and less costly move to other industries. Finally, the model
assumes that technology differences are the only differences that exist between
the countries. It applies in the short-run because the technology can change
internationally over time.
We study the model because, “there is empirical evidence that the Ricardian
theory is very useful for explaining the reasons for and effects of trade between
countries” (Bauer, 2007).
Source: https://saylordotorg.github.io/text_international-trade-theory-and-
policy/s05-the-ricardian-theory-of-compar.html
2. How does the HOS model modify the Ricardian model? Does this add sufficient
realism to the model?
- Unlike in the Ricardian model, the HOS model pertains to two factors of
production, namely, labor and capital. It differs from the comparative
advantage theory that focuses on the efficiency of the production process.
Because the country produces goods based on the resources that they have
in abundance, it will be cheapest to produce these goods. assumes that labor
and capital can flow freely between sectors and that the amount of these
two factors differs among countries. This model assumes that in the long-run
countries have same technology; Yes, it can add sufficient realism.
Source:https://financetrain.com/ricardian-and-heckscher-ohlin-models-of-
international-trade/
3. Is there any relationship between the Gravity model and the Ricardian and HOS
models? Which model is more realistic in your view?
- The gravity model suggests that relative economic size attracts countries to trade
with each other while greater distances weaken the attractiveness while, the
 previous models implies that the size of an economy was not considered significant.
The widespread adoption of the gravity model to explain patterns of trade has been
seen by economists as the empirical one and has significant development on
previous theoretical models.
Source:https://www.economicsonline.co.uk/Global_economics/Gravity_theory_of_tr
ade.html
4. How do you explain the fact that the theories of the international trade that we have
discussed stress that more trade takes place when factor endowments are different
with the empirical results that most trade takes place between rich countries with
similar factor endowments?
-As a result of the differences and variation in a country's endowments, factor
endowment theory states in economic reasoning that these different breakdowns
of capital to labor will determine a country's comparative advantage and what to
manufacture or specialize an economy on.
Source:https://www.investopedia.com/ask/answers/041615/how-do-factor-
endowments-impact-countrys-comparative-advantage.asp
5. Import-substitution policies are very attractive and have been adopted by many
developing countries. Explain the advantages of such policies.
- Import-substitution policies seek to promote rapid industrialization and,
therefore, development by erecting high barriers to foreign goods in order to
encourage domestic production. It consists of a broad range of control,
restriction and prohibitions such as import quotas and high tariffs on imports.
The trade restrictions are intended to “protect” domestic industries so that they
can gain comparative advantage and substitute domestic goods for formerly
imported goods.
Source:http://www.economicsdiscussion.net/economic-development/import-
substitution-and-export-promotion-economics/26803
6. Eventually import-substitution policies were replaced by other policies. What were
these policies and why were they adopted?
-Economies adopting import-substitution policies did not succeed in growth and
development, since there are unfavorable consequences by the government’s
interference. Government subsidy was provided free, the manufacturing plant
could experience loss, which would persist or even expand. It was changed by an
export-led strategy which is known to be more successful in countries adopting this
like South Korea, Taiwan, Singapore and Hongkong. It produces a “virtuous cycle”
that begins with the attraction of foreign investment, promotion of domestic
industries, rise in employment, outcome, and exports. Trade surplus improves the
exchange rate and international reserves. -Redefining Capitalism in Global Economic
Development, 2017
7. Explain the rationale for dual pricing. What is the difference between dumping and
dual pricing?
 - Dual pricing may be employed to drive out other competitors and then raise its
prices once the other parties are no longer selling in the market, there may be
financial and tax reasons, different distribution costs and prices may ne
demand- based. Dumping is when a country or company exports a product at a
price that is lower in the foreign importing market than the price in the exporter's
domestic market while, dual pricing is the practice of setting different prices in
different markets for the same product or service.
Source:https://www.accountingtools.com/articles/dual-
pricing.html&https://investopedia.com
8. The “Flying Geese” model is based on shifting comparative advantage. Does this
model have its roots in international trade theory or in growth theory? How can
growth theories be adjusted to take the “Flying Geese” paradigm into account?
- The logic of the FG paradigm (as understood in its typical modern versions)
emphasizes the importance of the orderly (market-rational) sequence – nationally
and regionally – in industrial development. It is thought to be not rational for any
country with an abundant unskilled labor – as the potential basis of its comparative
advantage – to try to take up the task of building the capital-intensive high-tech or
knowledge-intensive R&D-driven sectors.
Source: https://unctad.org/en/PublicationsLibrary/osgdp20133_en.pdf
9. Discuss the relative costs of an import tariff versus an import ban. What is the crucial
distinction between the two economic effects? Demonstrate graphically.
500
450 Imports take on effect that would
400 initially make a domestic producer
350 produce less since there is higher
300 demand in imports.
250 World Price + P50 tax
200 As when an import tariff is imposed,
World Price
150 the cost of the product will increase
0 therefore, it increases the price and
0 10 20 30 40 50
decreases consumer surplus.

10. What is the fallacy of competition

suggested by William Cline? What are the empirical results regarding this fallacy? Are
they different from the theory? Why?
- fallacy of composition (FC) problem: what seemed logical for one country in
isolation was logically inconsistent when generalized. Cline (1982) presented
calculations suggesting that FC problems could indeed pose limits on the pace and
breadth of generalizing the East Asian growth model. Further calculations in Cline
(1984) suggested, nonetheless, that relatively robust rates of growth of
manufactured exports from developing countries could be pursued without
triggering protection, so 196 Exports of Manufactures and Economic Growth: The
 Fallacy of Composition Revisited long as they observed “speed limits” that were
substantially slower than the pace that had so far characterized the East Asian
model of growth.
Source:https://pdfs.semanticscholar.org/e6a7/bc2075452ee6e9862c0a0df0293d189c
6aaa.pdf?_ga=2.85554649.1155355406.1585369594-1284445069.1585369594
11. Foreign direct investment has helped many countries to develop in Asia. Still, there is
some reluctance to accept or attract foreign direct investment in certain countries.
Explain their motivation? Have any countries been successful in governing rapidly
without much FDI? If so, how they do it? Can their experience be replicated?
- Like Indonesia, after an absence from the FDI destination list for a few years after
the 1997–1998 Asian Financial Crisis, Indonesia was back in the top 10 destinations
following the 2007–2008 Global Financial Crisis (Table 1), thanks to reforms during
the government of former President Yudhoyono as well as improved domestic
economic growth prospects, thus total FDI is still rising.
Source:https://www.adb.org/news/op-ed/foreign-direct-investment-not-coming-
indonesia-really-edimon-ginting
12. Discuss how the factor price equalization theorem worked in Asia and how did it
relate to the “Flying Geese” model?
- The factor price equalization theory is a theory that explains the effects of trade
and globalization on the price of goods. The theory is often applied to workers’
wages. It predicts that trade will make less scarce the less-skilled workers in
advanced countries and skilled workers in developed countries, therefore reducing
their wages. Conversely, it will make more scarce unskilled workers in developing
countries and skilled workers in developing countries, therefore raising their
wages. The eventual outcome predicted by the theory is that equally skilled
workers across countries will have equal wages.
Source: https://mediawiki.middlebury.edu/IPE/Factor_price_equalization_theory
13. Explain the statement, “The Asian financial crisis was intimately related to foreign
trade.”
-There are thus a number of potentially significant trade implications from the Asian
crisis. We will shortly be moving into the period where countries both inside and
outside the region may be tempted to turn to trade restrictions, or at least to avoid
new trade liberalization, to help them through the difficult adjustment period.
14. Discuss why there has been such a large increase in intraregional trade in the past
decade, even while there is so much concern about competition from China.
- Asia's growing share of world trade has resulted largely from increased regional
trade integration.  Intra-industry trade is also booming. This trend in emerging Asia
tracks developments in the more advanced economies, but the motivation in Asia is
quite different. China is playing a key role as the region’s export platform,
importing more from Asia and exporting more to the rest of the world.
 Source:https://www.piie.com/commentary/testimonies/trade-implications-asian-
financial-crisis
15. Discuss the relative advantage of bilateral prefrential trade agreements and
multilateral agreements?
- The advantage of bilateral trade agreements increases trade between the two
countries. They open markets to successful industries. As companies benefit,
they add jobs. The country's consumers also benefit from lower costs. They can
get exotic fruits and vegetables that can get too expensive without the
agreement. They are easier to negotiate than multilateral trade agreements,
since they only involve two countries. Multilateral agreements advantages make
all signatories treat each other equally, increases trade for every participant,
standardizes commerce regulations for all the trade partners, countries can
negotiate trade deals with more than one country at a time, and applies to
emerging markets (Amadeo, 2020).
16. How does the discussion regarding trade in services relate to innovation
developments in globalization, and in information and computer technology?
- Digital technologies are driving a rising share of services trade in the global
economy. Many services that previously required face-to-face contact between the
firm and consumer can now be provided remotely, with the additional transaction
costs for some of these Internet based services close to zero. The ICT revolution has
reduced the transaction costs and information asymmetries associated with
international trade through platforms and support services that make it easier for
firms to access international markets. Digital innovations such as mobile money,
online marketplaces, and the sharing economy, overcome many of the traditional
constraints to international trade in services.
Source: http://www2.itif.org/2016-tisa-services.pdf
17. Explain the meaning of triangular trade. How does this term relate to the trade
relationship between China and other Asian economies?
- Triangular trade or triangle trade is a historical term indicating trade among
three ports or regions. Thus, since the mid-1990s a new triangular trade pattern
has emerged. On the one hand, both Japan and the other emerging Asian
economies invest in and export capital goods, including final capital goods and
components, to China; on the other hand, China exports more and more to the
traditional markets of other Asian economies. As a result, China has to some
extent become a substitute for Japan and emerging Asian economies as the
most important source of US imports, and in this process, rapid export growth
since the 1990s had significantly upgraded the technological structure of China's
manufactured exports (Yu and Hu 2015).
18. Discuss how the rapid growth in China has impacted on the other countries to Asia in
terms of the pattern of international trade.
- China’s export growth has both competitive and complementary effects. Lower
labor costs afford China’s labor-intensive exports competitive advantages in the
world’s major export markets and add competitive pressure to countries that
export similar products. Moreover, the enormous domestic import demand due
to China’s rapid economic development and its demand for energy and raw
materials also provide a tremendous stimulus for exports from other countries.
China’s trade production has strong network effects as a result of the
development of an increasingly important integrated regional production
system in Asia. –” The impact of China’s economic development on the global
economy”