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Econ 113: Economics of Globalization: Augustine H H Tan Jan 2020
Econ 113: Economics of Globalization: Augustine H H Tan Jan 2020
Econ 113: Economics of Globalization: Augustine H H Tan Jan 2020
TABLE 2.1
Econ 113: Economics of Globalization
Absolute advantage; each nation is more efficient in producing one good
1 2
Basic Concepts
Presented by
1 2
Labor has same attributes for the 2 countries in 1 kg of meat and bread crumbs you get only 1
kg of sausage, then TFP = 0
If you get 1.01 kg of sausage, then TFP = 1%
TFP is crucial to improving living standards
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TABLE 2.3
Comparative advantage, U.S. -absolute advantage in producing both goods David Ricardo [Table2.3]
5 6
5 6
TABLE 2.4 Gains from specialization & trade: constant opportunity costs
Gains From Trade & Global Output
7 8
7 8
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TABLE 2.2
Examples of comparative advantages in international trade
Competitiveness
11 12
Productivity
Wage level compared to partner countries
Exchange rate
Education & training of workers
Infrastructure
Quality of governance
R&D
11 12
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Y = C + I + G + [X-M] Y = C + I + G + [X-M]
A = C+I+G = Absorption
C = Consumption B = X-M balance of trade
I = Investment
G = Government Expenditure
B=Y–A
X = Exports
*To improve the balance of trade, the country must
M = Imports
increase Y and/or decrease A
X-M = Trade balance
X>M = Export surplus
*Putting tariffs on imports and/or devaluing the
X<M = Import deficit
currency will do little or nothing to reduce a trade deficit.
The other country can retaliate and/or devalue as well.
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GDP: final goods and services produced within the Balance of trade [goods & services]: X-M
boundaries of a nation Current Account: largely X-M but also includes
GNP: GDP + income from investments abroad less investment income, transfers abroad, military
income earned by foreigners expenditures….
Singapore: because of land and labor constraints, CA > 0 surplus: the country is a net lender to others
tries to grow GNP and not merely GDP. Investments Ca < 0 deficit: the country is a net borrower from
abroad by GIC & Temasek Holdings yield an income others
for us. Likewise, private investments abroad yield
Global economic imbalance: a few countries like
income to residents here.
China, Germany, Singapore, S Arabia…have CA
surpluses while others like the US are in huge CA
deficit
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