Final Projects for International Economics

(Spring Semester, 2016)

Instructor: Associate Professor Guo Lin.

Teaching Assistant: Zhang Yu & Sun Mengxuan
(Economics and Management School of Wuhan University, 430072)

Contents
Chapter 2: World Trade: An Overview ..................................................................................... 1
Project 2.1: Who Trades with Whom? .................................................................................. 1
Project 2.2: Distance Matters （Three versions of China, US and Chinese Hong Kong）. 1
Project 2.3: North American Free Trade Agreement ............................................................ 1
Project 2.4: Changing Composition of Trade ........................................................................ 2
Chapter 3: Labor Productivity and Comparative Advantage: The Ricardian Model ................ 2
Project 3.1: Comparative Advantage ..................................................................................... 2
Project 3.2: Growing Trade ................................................................................................... 2
Project 3.3: Wages and Productivity ..................................................................................... 3
Project 3.4: Trade and Transport Costs ................................................................................. 3
Chapter 4: Resources, Comparative Advantage, and Income Distribution ............................... 4
Project 4.1: Relative Prices and Distribution of Income ....................................................... 4
Project 4.2: Factor Intensity .................................................................................................. 4
Project 4.3: Flow of Trade and Factor Intensity .................................................................... 5
Project 4.4: Trade and the Distribution of Income ................................................................ 5
Chapter 6: Economies of Scale, Imperfect Competition, and International Trade .................... 5
Project 6.1: Intraindustry vs. Interindustry Trade.................................................................. 5
Project 6.2: Direction of Trade with Economies of Scale ..................................................... 6
Chapter 7: Intertemporal Trade ................................................................................................. 6
Project 7.3: Intertemporal Trade............................................................................................ 6
Project 7.4: Intertemporal Trade 2......................................................................................... 7
Chapter 8: The Instruments of Trade Policy ............................................................................. 7
Project 8.1: Tariffs ................................................................................................................. 7
Chapter 9: The Political Economy of Trade Policy ................................................................... 8

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 Project 9.3: The Importance of Services in Trade ................................................................. 8
Chapter 10: Trade Policy in Developing Countries................................................................... 8
Project 10.2: Trade as a Percentage of GDP ......................................................................... 8
Project 10.4: East Asian Miracle ........................................................................................... 8
Chapter 11: Controversies in Trade Policy ............................................................................... 9
Project 11.1: De-Industrialization of the United States ......................................................... 9
Project 11.2: Shifting Jobs..................................................................................................... 9
Project 11.3: Nations Competing .......................................................................................... 9
Chapter 12: National Income Accounting and the Balance of Payments ................................ 10
Project 12.2: Trade to GDP Ratios ...................................................................................... 10
Project 12.3: Changes in the Current Account .................................................................... 10
Chapter 22: Intertemporal Borrowing ..................................................................................... 10
Project 22.5: Intertemporal Borrowing................................................................................ 10

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Chapter 2: World Trade: An Overview

Project 2.1: Who Trades with Whom?

Description: Find the major trading partners for the U.S., and then find the GDP of those countries.
Of the 10 largest U.S. trading partners, which of them have one of the largest 10 levels of GDP?
Create a table that lists the 50 largest trading partners with the U.S. and their respective GDP values.
Then plot the data, with the GDP data on the horizontal axis and the value of trade on the vertical
axis.

Data: Go to the Bureau of Economic Analysis International Economic Accounts site at

http://www.bea.gov/international/index.htm#bop to find the value of trade with various countries.
Select "Interactive Tables: Detailed estimates," then "Table 11. U.S. International Transactions, by
Area" and the appropriate display features.
To find GDP, go to the World Bank Web site at http://www.worldbank.org/data/. Click "Data" on
the left navigation menu to go to the "Key Development Data & Statistics" page. Click on "Quick
Reference" under the now expanded Data menu to go to the "Quick Reference Tables".

Project 2.2: Distance Matters （Three versions of China, US and Chinese Hong Kong）

Description: Find the 5 largest trading partners for Hong Kong and their calculated distances from
Hong Kong. Of the 5 largest trading partners with Hong Kong, which ones are not among the 5
largest trading partners with the U.S., according to Table 2-1 in the text? Are these countries close
to Hong Kong but far from the U.S.? Do they share a common language with Hong Kong?
Of the 5 largest trading partners with Hong Kong, which ones are among the 5 largest trading
partners with the U.S., according to Table 2-1 in the text? Do these countries have large GDPs? (See
Web Application 2.1.)

Data: For information on trading partners, go to the Hong Kong Trade and Industry Department
site: http://www.tid.gov.hk/english/trade_relations/mainland/trade.html (Chinese Taipei refers to
Taiwan). To find calculated distances, go to http://www.cepii.fr/anglaisgraph/bdd/distances.htm and
download the file dist_cepii.xls. The first column displays codes for country names: HKG refers to
Hong Kong, CHN refers to China, USA refers to the USA, JPN refers to Japan, TWN refers to
Taiwan, and SGP refers to Singapore. Use the variable "dist" as a simple measure of the distance
between the largest cities between two countries.

Project 2.3: North American Free Trade Agreement

Description: By how much did merchandise exports from the U.S. to NAFTA partners increase
from 1993 to 2000? By how much did merchandise exports from the U.S. to the world as a whole

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increase during the same time period? Does this finding suggest that the effect of borders can be
reduced through free trade agreements? Do you expect exports to NAFTA partners to grow faster
than exports to all countries in the near future? Why or why not?

Data: Go to International Trade Administration website at

http://ita.doc.gov/td/industry/otea/OTII/want2_TPAs.html and read "NAFTA: A State Export
Perspective, 1993-2003."

Project 2.4: Changing Composition of Trade

Description: Can you guess which commodity makes up the largest fraction of the total value of
exports in the world? How are manufactured commodities classified? How are agricultural
commodities classified? How are mineral commodities classified?
What commodities does U.S. export? How much have exports from U.S. changed in the last few
years? What were the largest commodity exports for U.S. in 1984,1994,2004 and 2014?

Data: For exports throughout the world, go to the International Trade Administration website site
at http://tse.export.gov/. Select "National Trade Data" and "Product Profiles of U.S. Merchandise
Trade with a Selected Market," then "Geographic Regions" and "World" and the appropriate display
features.

Chapter 3: Labor Productivity and Comparative Advantage: The Ricardian Model

Project 3.1: Comparative Advantage

Description: Is the pattern of trade consistent with the idea of comparative advantage? Sometimes
it is difficult to say which nation has a comparative advantage in producing a given item, but let's
look at trade in the following items between the U.S. and a few other countries to see if the pattern
of trade fits what we expect.
United States: computers and machine tools; Brazil: coffee and agricultural exports
United States: computers and machine tools; China: manufactured goods
United States: computers and machine tools; Venezuela: fuel and natural resources
Try the above examples or investigate other countries and goods that might be interesting.

Data: Go to the U.S. Census Bureau's site on to bilateral trade statistics for the U.S. and another
country: http://www.census.gov/foreign-trade/sitc1/. Select your country of interest and then select
"Go" to see imports and exports of categories of goods between the U.S. and the selected country.

Project 3.2: Growing Trade

Description: Figure 1-1 shows that the volume of trade relative to the economy has grown in the

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U.S. in the past four decades. Does this pattern hold for other countries?

Data: Go to the World Bank's site http://www.worldbank.org/data/ and click on "Data" on the side
menu. Scroll down to select "Quick Query." Click on "Aggregates" and then your favorite region,
or "World." Select "Next," and then select "Exports of goods and services (as a % of GDP)" and
"Imports of goods and services (as a % of GDP)".
Alternatively, use the Penn World Tables at http://datacentre.chass.utoronto.ca/pwt/. You can use
the "Openness" variable under the PWT 6.1 heading after selecting "Alphabetical List of Countries."

Project 3.3: Wages and Productivity

Description: The text provides some evidence that changes in wages and changes in productivity
move together. More specifically, as a country's productivity increases, we predict that average
wages also increase. To test this prediction, find data on hourly production and hourly compensation
in manufacturing for fourteen industrialized countries from 1979 to 2011. Graph the relationship
between the change in productivity and the change in wages. If you understand regression analysis,
you can use a regression to predict changes in wages (the dependent variable) based on changes in
productivity (the independent variable), even though the sample size is too small to draw robust
conclusions. Do productivity changes explain a large part of wage changes? Are the results
consistent with the prediction?

Data: Go to the BLS site at http://stats.bls.gov/news.release/prod4.toc.htm, then look at the tables

in the report.

Project 3.4: Trade and Transport Costs

Description: According to Ricardian theory, it might seem plausible that the pattern of trade
between the U.S. and Canada would be similar to that between the U.S. and Australia if the
transportation costs between the nations were similar. One would expect that trade between the U.S.
and Canada should generally involve lower transport costs than trade between the U.S. and Australia.
Is this fact reflected in the data? Calculate the total trade volume between the United States and each
nation relative to that nation's GDP. If the calculations are not consistent with Ricardian theory, what
other factors in the real world or what other theories could explain the results?

Data: Use the Census Bureau page at http://www.census.gov/foreign-trade/sitc1/ to find the trade
statistics. You can find GDP at the World Bank site at http://www.worldbank.org/data/. Select
"Data," then "Quick Reference" and look for "Total GDP."

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 Chapter 4: Resources, Comparative Advantage, and Income Distribution

Project 4.1: Relative Prices and Distribution of Income

Description: When the price of a product rises, we predict that the factors of production used
intensively in making that product to be paid more. Economists usually say that improvements in
production technology allow firms to increase production, lower prices, or both. In addition, changes
in production technology should change the demand for factors of production, and therefore their
prices. Improvements in production technology are expected to increase the demand for workers
skilled in this technology, and therefore their relative wages. Workers unskilled in the new
technology are expected to have lower relative wages, even if their absolute wages have risen due
to greater production. In general, technological changes change the demand and relative wages of
skilled and unskilled workers.
Have technological changes over the last few decades increased the wages of skilled workers
relative to those of unskilled workers? This question is difficult to answer because it is hard to
measure "skills." But if we claim that education levels are related to skills (which at times may seem
preposterous), then we can relate education levels with changes in wages. Using the data links below,
graph hourly wages for each of the five levels of education over time. Do you see evidence of faster
growth in wages for highly educated workers? You can also graph the following ratios:
wages for workers with an advanced degree / wages for workers without a high school diploma
wages for workers with a college diploma / wages for workers with a high school diploma
wages for workers with a college diploma / wages for workers with only some college
(Although technology is viewed as the major cause of changes in relative wages, trade and
immigration may also some influence the trends to some degree, although economists are still
debating to what degree.)

Data: Go to the Economic Policy Institute's site http://epinet.org/datazone/ and select "National
data." Search for "Real hourly wage for all by education."

Project 4.2: Factor Intensity

Description: Measuring the intensity of how factors of production are used is not simple: multiple
factors of production exist, a country's abundant factor may depend on the resources of other
countries under consideration, and an intensive factor of production may depend on the industries
under consideration. For example, try to calculate the labor-to-land ratio between countries. If we
assume that the labor force is a constant fraction of the population, we can compare the population-
to-land ratio (population density) between countries. Calculate the population-to-land ratio for the
U.S., the U.K., and Australia. If the U.S. has an abundance of land in these calculations, would you
predict that it is a net exporter of agricultural goods? Should it therefore also be a net importer of
labor-intensive goods? Depending on the countries involved, it is hard to predict.

Data: For the abundance/scarcity calculations, go to the World Bank site at

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http://www.worldbank.org/data/. Click "Data", select "Quick Reference," and search for "Total
GDP" and "Population."
For U.S. imports and exports in agriculture, go to the International Trade Administration's site at
http://tse.export.gov/. Click on "National Trade Data" and then "Product Profiles of U.S.
Merchandise Trade with a Selected Market." Select the appropriate country, then "Balance" and the
appropriate display. Consider at least two categories of agricultural products.

Project 4.3: Flow of Trade and Factor Intensity

Description: Because it is difficult to determine the factor intensity in different industries and
because goods of the same category have different characteristics, sometimes we cannot explain the
trade patterns that occur between countries using the Heckscher-Ohlin theory. Would you expect the
U.S. or Germany to be an exporter of chemicals? Which country actually does export chemicals?
Which type of chemicals? Notice that the United States and the United Kingdom import and export
goods of the same type. Can the Heckscher-Ohlin theory explain this? (Chapter 6 provides a better
explanation for this fact.)

Data: The Census Bureau's site at http://www.census.gov/foreign-trade/sitc1/ gives bilateral trade

data about chemicals and related products.

Project 4.4: Trade and the Distribution of Income

Description: Find GDP per capita for the major trading partners of the U.S. Which factors of
production do you expect these countries to be abundant and scarce in? Which factors of production
do you expect the U.S. to be abundant and scarce in? Do you expect owners of scarce factors of
production in the U.S. and in the other countries to have relatively low incomes? Is GDP per capita
related to abundance and scarcity of the factors of production?

Data: Go to the Bureau of Economic Analysis International Economic Accounts site at

http://www.bea.gov/international/index.htm#bop to find the value of trade with various countries.
Select "Interactive Tables: Detailed estimates," then "Table 11. U.S. International Transactions, by
Area" and the appropriate display features.
To find the GDP per capita, go to the World Bank page at http://www.worldbank.org/data/. Select
"Data" and "Quick Reference," then "GNI per capita."

Chapter 6: Economies of Scale, Imperfect Competition, and International Trade

Project 6.1: Intraindustry vs. Interindustry Trade

Description: According to the current chapter, we expect to see intraindustry trade among
countries with similar capital-labor ratios and comparative advantages. Alternatively, we expect to

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see interindustry trade among countries with different capital-labor ratios and comparative
advantages. Pick three countries that you would expect to engage in intraindustry trade with the
United States, and three countries that you would expect to engage in a great deal of interindustry
trade with the United States. Look at the data and see if your suspicions were correct.

Data: Use the Census Bureau trade page at http://www.census.gov/foreign-trade/sitc1/. Select

your countries from the drop-down list.

Project 6.2: Direction of Trade with Economies of Scale

Description: As the chapter describes, the direction of trade is indeterminate when economies of
scale or imperfect competition exists. Since many Northern European countries are similar in both
their capital-labor ratios and their intellectual history, it is hard to say why some would produce
chemicals and others would produce office furniture or financial services. Look at the SITC codes
for these products in the U.S. import data. Does the United States import similar products from all
Northern European countries, or have certain countries specialized in different industries? Consider
Germany, Sweden, France, the Netherlands, and the United Kingdom.

Data: Use the Census Bureau trade page at http://www.census.gov/foreign-trade/sitc1/. Select

your countries from the drop-down list.

Chapter 7: Intertemporal Trade

Project 7.3: Intertemporal Trade

Description: Britain industrialized before other countries and had the highest income per capita
for quite some time. According to theory, we would predict high income to generate a high amount
of saving and therefore a low interest rate in Britain relative to other countries at the time. In other
words, there should have been a high relative price of future consumption, 1/(1+r). In addition,
Britain should have been producing a lot and exporting a lot, so that it should have had a large
current account surpluses.
Find interest rate data on the United Kingdom, the United States, and France from 1870 to 1900.
Compare the rates and see if the United Kingdom generally had lower rates.
Find the United Kingdom's current account during the same period. Was it generally positive?

Data: The National Bureau of Economic Research has historical interest rate data at
http://www.nber.org/data/. Go to "Macro History Database," and choose "Chapter 13, Interest
Rates." Look at series m13016 for the United Kingdom, m13001a for the United States, and m13017
for France. Note that the theory uses real interest rates, while the data are nominal interest rates.
Since these countries were members of the gold standard, it is a reasonable to assume that their
inflation rates are similar. Therefore, the difference between real and nominal rates would be the
same in each country (see Chapter 15 for more on this topic).
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For current account data, go to http://www.nber.org/databases/jones-obstfeld/index.html. Look at
the "Final" page of current account data for the United Kingdom (be sure to read the accompanying
description of the file under "Notes" before you view or download it).

Project 7.4: Intertemporal Trade 2

Description: Economists Martin Feldstein and Charles Horioka have found that domestic savings
and investment expenditure as a percentage of GDP are closely correlated for most countries, which
implies that saving and investment from other countries and the value of goods from other countries
will be close to zero. In other words, the current account will be close to zero (see Chapter 12 of
your textbook for more on the current account). Calculate the average absolute value of the current
account as a percentage of GDP for several countries and decades. Are there some periods where
some countries are borrowing or lending heavily from other countries? But if most periods for most
countries show little intertemporal trade, why might domestic saving match investment expenditure
so that few funds (and goods) come from foreign markets? (See Chapter 21, section "The Extent of
Intertemporal Trade," for a discussion of Feldstein-Horioka.)

Data: For current account data, go to http://www.nber.org/databases/jones-obstfeld/index.html

and download the appropriate "Final" files. Be sure to read the accompanying description of each
file before you view or download it.

Chapter 8: The Instruments of Trade Policy

Project 8.1: Tariffs

Description: Unlike during past centuries, most major countries today do not primarily use tariffs
to generate government revenue, but instead rely on other forms of taxation. Look at tariff revenue
in the U.S. as a percentage of the federal budget over time. What percent of the budget comes from
tariff revenue?

Data: The Bureau of Economic Analysis has data after 1928 at

http://www.bea.gov/bea/dn/nipaweb/. Choose "List of All NIPA tables", then search for taxes on
imports (table 3.5) and government current receipts (table 3.1). "Customs duties" represents tariff
revenue. For data from 1879-1929, use the NBER site
http://www.nber.org/databases/macrohistory/contents/chapter15.html. Series m15001 provides
customs revenue. Series m15004a provides total federal receipts. Because of differences in
measurement, the earlier data may not exactly correspond with the later data.

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 Chapter 9: The Political Economy of Trade Policy

Project 9.3: The Importance of Services in Trade

Description: As discussed in the chapter, many restrictions on trade in services still exist. Look at
services exports as a percentage of total U.S. exports and the balance of service trade. If trade
negotiations are driven by the interest of producers, do you see why the U.S. is interested in reducing
the trade restrictions on services? Do you see why some U.S. trading partners may not see it as being
in their interest to liberalize the trade of services?

Data: Go to St. Louis Federal Reserve Bank site for service exports
http://research.stlouisfed.org/fred2/data/BOPXSV.txt, total exports
http://research.stlouisfed.org/fred2/data/BOPX.txt and the balance of service trade
http://research.stlouisfed.org/fred2/data/BOPBSV.txt.

Chapter 10: Trade Policy in Developing Countries

Project 10.2: Trade as a Percentage of GDP

Description: Countries that pursued import substituting industrialization had low ratios of exports
to GDP, while many countries in Asia that pursued alternative policies had high ratios. Consider
how these ratios have changed over time for Korea, Singapore, Thailand, Japan, Brazil, Mexico, the
U.S. and Australia. First graph exports/GDP over time for each country, then make a separate graph
where the ratios are indexed based on their values in 1965. That is, divide the ratios for each country
by the value for that country in 1965. In which countries did exports grow over time?

Data: The Penn World Tables 6.1 http://datacentre.chass.utoronto.ca/pwt/index.html has data on

exports as a fraction of GDP. Select "Alphabetical List of Countries," then search on "OPENNESS"
for the desired countries.

Project 10.4: East Asian Miracle

Description: To show how fast countries in East Asia have grown, graph the growth of GDP per
capita and trade as a share of GDP for Taiwan, Hong Kong, Singapore, South Korea, Malaysia,
Thailand, Indonesia, and China from 1950-2000. Compare the results to Japan from 1965 to 1992.
What happened in 1997?
As you look at the data, recall the discussion about the East Asian "miracle" and that correlation in
data does not imply causation.

Data: The Penn World Tables 6.1 http://datacentre.chass.utoronto.ca/pwt/index.html have data on

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the volume of trade as a percent of GDP and GDP itself. Select "Alphabetical List of Countries" and
"OPENNESS" for trade as a percent of GDP.

Chapter 11: Controversies in Trade Policy

Project 11.1: De-Industrialization of the United States

Description: In 1970, 27% of the U.S. work force held jobs in manufacturing. In 1995, the
percentage was 16%. Has growing imports of manufacturing goods relative to exports of
manufactured goods been associated with this drop? (If not, perhaps growing productivity of
workers from new technology has been?)
If the United States is importing more manufactured goods relative to manufactured exports, is it
also importing more manufactured goods relative to GDP?

Data: Use the International Trade Administration site at http://tse.export.gov/. Select "National
Trade Data," then "Global Patterns of U.S. Merchandise Trade" and the NAICS code for all
manufactured goods under the "item" button. You will need to download imports and exports
separately. For GDP go to the BEA site at
http://www.bea.gov/national/nipaweb/SelectTable.asp?Popular=Y.

Project 11.2: Shifting Jobs

Description: Although some low-tech jobs been eliminated in the U.S. during the past few
decades, some high-tech jobs have been created. In what sectors are jobs in the United States
disappearing and in what sectors are they being created? Look at textiles, machinery, and computer
manufacturing employment over time.

Data: Go to the Economagic webpage, http://www.economagic.com/blslf.htm. Type

"employment" in the search box at the bottom of the page, and then type "SIC = " and the SIC code
in the second blank: 22 for textile mill products, 23 for apparel and other fabricated textile products,
35 for machinery, and 50 for durable goods. Try codes for other industries if you are curious.

Project 11.3: Nations Competing

Description: If trading nations are competitors in a zero-sum game, as specified in the Brander-
Spencer analysis, then their growth rates could be countercyclical. Graph the U.S. growth rate of
GDP per capita over the last 25 years versus those of its top five trading partners. Does it seem that
when the United States is doing well, its partners are doing poorly? Another test is to see if export
growth across countries is countercyclical. Graph exports relative to GDP for these countries as well.

Data: To find the United States' top trading partners, go to the Bureau of Economic Analysis

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International Economic Accounts site at http://www.bea.gov/international/index.htm#bop to find
the value of trade with various countries. Select "Interactive Tables: Detailed estimates," then "Table
11. U.S. International Transactions, by Area" and the appropriate display features.
For GDP per capita, use the Penn World Tables 6.1 at
http://datacentre.chass.utoronto.ca/pwt/index.html and select "Alphabetical List of Countries." To
calculate exports/GDP, use both the 6.1 and the 6.1 National Accounts tables.

Chapter 12: National Income Accounting and the Balance of Payments

Project 12.2: Trade to GDP Ratios

Description: Think of countries, like the U.S., that might have a low ratio of exports and imports
to GDP. Why might this be? Compare this ratio to GDP itself, and to population, to see whether
large countries have less trade relative to GDP.

Data: The Penn World Tables at http://datacentre.chass.utoronto.ca/pwt/ have a variable

"OPENNESS" that measures the ratio of exports and imports to GDP and other necessary data for
various countries.

Project 12.3: Changes in the Current Account

Description: Look at the current account over time for various countries. When do you see
substantial changes in the magnitude and changes in the sign for these countries? Can you guess
what the causes of these movements were? Graph the changes in the current account with changes
in aggregate investment expenditure, government expenditure and national saving in three separate
graphs.

Data: The Penn World Tables 6.1 and 6.1 National Accounts at
http://datacentre.chass.utoronto.ca/pwt/ have the necessary data for various countries. Use the
variable "OPENNESS" times GDP to calculate the value of the current account.

Chapter 22: Intertemporal Borrowing

Project 22.5: Intertemporal Borrowing

Description: Borrowing from international capital markets can make sense for poor and middle
income countries if they can use the funds to finance investment expenditure for a growing economy.
To what degree does this occur? Graph the current account as a fraction of GDP versus GDP per
capita for several countries using data from 1979, 1984, 1990, 1998 and 2005. Are poor and middle
income countries borrowing from international capital markets as theory says they should? Recall
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that a negative current account is associated with positive financial and capital accounts, which in
turn are associated with financial capital inflows that can be used to finance investment expenditure.

Data: The Penn World Tables 6.1 at http://datacentre.chass.utoronto.ca/pwt/ provide the necessary
data for many countries. Select "Alphabetical List of Countries" then the variable "OPENNESS"
for the ratio of the current account to GDP. Use the "Constant Price: Chained Series" for real GDP
per capita. Pick countries from different regions to get a diverse sample.

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