eco growth .papu

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5/7/12 Presented by Papu Singh

Project

on

EconomicGuided by:CHANDI PRASADMAHARANA

Submitted by-

Papu KumarSingh

Regd. No.-ERO0180212Batch .-19

Presented b

y Papu Singh 115/7/12


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5/7/12 Presented by Papu Singh

Key Terms

Comparative staticDynamic analysisBalanced growthImmiserizing growthLabor/capital saving technical progressPro trade production and consumptionNeutral technical progressNormal goodsRybczynski theorem

Wealth effectConclusion

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5/7/12 Presented byPapu Singh

1. Introduction

Extend our trade model to include suchchanges as factor endowments,technology and tastes, and their effectson the nation's offer curve, the volumeand terms of trade, and the gains fromtrade. Discuss Rybczynski theorem. Define different types of technicalprogress and their effects on the

nation's production frontier. Examine the effect of growth andchange in tastes in both nations on thetrade volume and terms of trade.Presented by Papu Singh

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5/7/12Presented by PapuSingh2. Static, Comparative Static and

Dynamic Analysis

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v Static AnalysisUp to the present, we only have

static analysis except the analysis ofproduct cycle and technological gap

models.v Comparative Static Analysis

It analyzes the effect on theequilibrium position resulting from a

change in underlying economicconditions and without regard to thetransitional period and process ofadjustment.v Dynamic Analysis

It deals with the time path and the5/7/12


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3.Growth of Factors

v Capital:It refers to all man-made means of

production, such as machinery, factories,office buildings, transportation andcommunications and also the educationand training of the labour force, all ofwhich greatly enhance the nation'sability to produce goods and services.vAssumptions:

All labor and capital arehomogeneous.

1X is L-intensive and Y is K-intensive.

Nations experience growth in the5/7/12


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4. K and L Growth Over Time

When both L and K grow at the same rateand we have constant returns to scale in theproduction of both commodities, theproductivity and the returns of L and K remain

the same after growth as they were beforegrowth took place. If the dependency rate, the ratio ofdependents to the total population, alsoremains unchanged, real per capita income and

the welfare of the nation tend to remainunchanged. If only L grows or L grows proportionatelymore than K, K/L will fall, the productivity of Land the returns to L and real per capita income

will also fall. If on the other hand, only K growsor K grows proportionately more than L, K/L will


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5. Summary of Technical Progress In the absence oftrade, all types oftechnical progress

tend to increase thenations welfare. Thereason is that withhigher productionfrontier and the sameLabour andpopulation, eachcitizen could be betteroff after growth than

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6. Pro-and Anti-tradeProductionIf the output of thenations exportablecommodity grows

proportionately more thanthe output of its importablecommodity at constantrelative commodity prices,then growth leads to a

greater than proportionateexpansion of trade. It iscalled protrade production.Otherwise it is antitradeproduction.

Neutral trade production:The expansion of output5/7/12


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7. Effects of Growth on Trade What happens to the volume of trade in the

process of growth depends on the net result ofthese production and consumption effects. If production and consumption are bothprotrade, the volume of trade expandsproportionately faster than output. If production and consumption are bothantitrade, the volume of trade expandsproportionately less than output and may evendecline absolutely.

If production is protrade and consumption isantitrade, or vice versa, the volume of trade cannot be decided. It depends on the net effect ofthe two opposing forces. If production and consumption are both neutral,

the volume of trade expands at the same rate asoutput.5/7/12


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8. Technical Progress, Trade &Welfare

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Neutral expansion of production andconsumption leads to the same rate of

expansion of trade. With neutral productionand protrade consumption, the volume oftrade would expand proportionately morethan production. With neutral productionand antitrade consumption, the volume of

trade would expand proportionately lessthan production. However, regardless of what happens tothe volume of trade, the welfare of therepresentative citizens will increase withconstant L and population and constant

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9. Growth and Trade: The Large CountryCase

vTerms-of-trade effect of growth: If growth expands the volume of trade at constant prices(constant exchange rate), then the terms of trade tend to deteriorate.(Why?) On the other hand, if growth reduces the volume of trade atconstant price (constant exchange rate), the nation's terms of trade

tend to improve. This is referred to as the terms-of-trade effect ofgrowth.vWealth effect of growth: The wealth effect is the change in the output per worker or per

person as a result of growth. A positive wealth effect (higher

productivity of labor) tends to increase the nation's welfare.Otherwise, the nation's welfare tends to decline or remainunchanged.

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9. Growth and Trade: The LargeCountry Case9.

The effect of growth on the nation's welfaredepends on the net result of the terms oftrade effect and a wealth effect. If both arepositive, the nation's welfare will definitelyincrease.

If both are unfavorable, the welfare willdefinitely decline. If the wealth effect andthe terms of trade effect move in oppositedirections, the nation's welfare maydeteriorate, improve or remain unchanged,depending on the relative strength of thesetwo opposing forces.

If wealth effect(positive) is greater thanPresented by Papu Singh 125/7/12


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10. Conditions for Immiserizing Growth

When growth tends to increasenation 1s exports substantially atconstant terms of trade. Nation 1 is large so that the

attempt to expand its exportssubstantially will cause a deteriorationin its terms of trade. The income elasticity of nation 2s

demand for nation 1s export is verylow, so that nation 1s terms of tradewill deteriorate substantially. Nation 1 is so heavily dependent ontrade that a substantial declining in itsterms of trade will lead to a reduction5/7/12


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5/7/12Presented by PapuSingh11. Growth & Trade in Both Nations

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Through time not only do economiesgrow, but national tastes also change. Growth affects a nations offer curve

through the effect that growth has on thenations production frontier. Similarly, achange in tastes affects a nations offer curvethrough the effect that the change in tasteshas on the nations indifference map. With growth or change in tastes in bothnations, both nations offer curves will shift,changing the volume or the terms of trade.

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12.CONCLUSION

Regardless of its source, a shift in anations offer curve toward the axis

measuring its exportablecommodities tends to expand tradeat constant exchange rates and

reduce the nations terms of trade.Opposite shifts in the nations offercurve tend to reduce the volume oftrade at constant exchange rates

and improve the nations terms of5/7/12

eco growth .papu

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