Chapter 5 Who gains and who loses from trade?

Also will look at Appendix B.

Link to syllabus

Figure 5.1 page 71 How free trade affects income distribution

Figure 5.2 page 72Effects of Free Trade: Short run versus Long Run

Stolper Samuelson Theorem (p. 72)

An event that changes (relative) product prices will raise the return of the factor used intensively in the rising price industry, and lower it for the other factor.

Specialized Factor pattern: The more a factor is specialized, the more it stands to gain (or lose) from a change in the (relative) product price.

Stolper and Samuelson, in AA, ~1990

Internationa

l Factor Price Equalization •

With the shift

to free trade: For each factor, its rate of return becom

es more sim

ilar between

countries. Under ideal

conditions, the factor’s real rate of return is the sam

e in different countries.

•Exam

ple: Labor.

With no trade, the w

age rate is high in the labor-scarce country (e.g., U

S). The wage

rate is low in the labor-

abundant country (R.o.W.).

With free trade, the im

port of labor-intensive products pushes the w

age rate down in

the labor-scarce country (e.g. U

S). The export of labor-intensive products pulls the w

age rate up in the labor-abundant country (R.o.W

.).

Figure 5.3 page 77Shares of the world’s factor endowments, 2007-2010

Figure 5.4 page 80. U.S. trade: consistent with H-O Theory?

Figure 5.5 page 84. Schematic View of Factor Content of U.S. Exports

Figure 5.6 page 85Factor content of Canada’s exports

China: Value of Exports and Imports, 1976-2006 p. 83

China’s Exports and Imports, 2009. p. 82

Land/Labor and Wage/Rent Ratios, 1870-1940.Great Britain, Egypt, Thailand, and Uruguay

Source: Williamson, NBER #7784

Land/Labor Wage/Rent

1870 19401870 1940

EYE ON THE GLOBAL ECONOMY

Back to list

Bade/ParkinP. 241

Persistent Gaps or Convergence?

EYE ON THE GLOBAL ECONOMY

Back to list

Bade/ParkinP. 241

Very interesting

Persistent Gaps or Convergence?

Gini Coefficient of Income Inequality in the U.S.

2010

2007

2004

(35)

2001

1998

1995

(25)

1992

(22)

1989

1986

1983

(19)

1980

1977

1974

(16)

(15)

1971

(13)

1968

1965

(10)

1962

(9)

1959

1956

1953

1950

1947

(5)

0.30

0.33

0.35

0.38

0.40

0.43

0.45

0.48

0.50

Inequality in US

Gini

Source: US Gov’t http://www.census.gov/hhes/www/income/data/historical/families/index.html

Sala-I-Martin 4

Global Income Inequality, using Gini Coefficient

Sala-I-Martin’s Estimates

China

India

US

QJE 2006

Sala-I-Martin 2

World Distribution of Income

World Income Inequality 1970-2000

Source: Sala-i-MartinQJE 2006

Regional Poverty Rates 1970-2000

Source: Sala-i-Martin QJE (2006)

Suggested reading in Chapter 5 (p. 88).Names from UM-Ann Arbor campus

Figure B.1 page 670 Production Functions with Fixed Factor Proportions

Figure B.2 page 671Edgeworth Bowley Box Diagram: Fixed factor proportions

Figure B.3 Page 671Production Possibility Curve, Fixed Factor Proportions

Both curves together p. 671

Figure B.4 page 672PPC Curve with constant opportunity costs

Figure B.5 page 673 Variable factor proportions

Question page 89.

Question 10 p. 90

Sala-I-Martin’s Estimates

Sala-I-Martin 3