Competitive Advantage
According to the theory of comparative advantages, does international trade always benefit the lower income group in a poor country?
Who do they trade with?
Who are the poor countries?
Define by using GDP per capita (usual gauge). Thus China can be considered as a poor country. Among the poorer group, they are richly endowed in labor. Poor countries tend to have more workers than machines.
They’re comparative advantage lies in their labor industries.
According to theory of comparative advantage, the workers will gain higher wages unambiguously.
If China trades, wages go up despite the fact that some sectors are sacking people.
Provide counter examples
W↑ W↑
Pf↑ Pm↓
(K/L) ↑ , ↑MPLf
Look at the assumptions:
If they are not mobile, in the SR,
F M
Lf Lm K
The losing sector will always shrink (refer to PPC), some people will be sacked. Because of immobility, wage will go down. If mobile wage will go up, because workers will leave, they will go from M to F if there’s a need for labor intensive industry.
Wm↓ Wm↓
Pm ↓ (Wm/Pm) ↓ Pf ↑ (Wm/Pf) ↓
(K/Lm ) ↓ - MPLm ↓ (because it has less tools to work with)
In the SR you don’t expect them to be perfectly mobile, you would expect some of the workers to lose, especially those going through the slump.
Policies:
1. Social programs to alleviate the workers lost.
2. Patience
3. Training programs to help the workers.
It will always benefit them in LR, in the SR there will always be someone who suffers.
What if labor is mobile and capital is immobile:
F M
Kf Km
After the final adjustment depicted in the model, the wage rate paid to workers is the same in industries but the rate on capital in the export industry is greater then the rental rate said in the import industry. In the second step , capital owners, (assumed to adjust in the final stage) in the import-competing industry begin to seek ways to obtain
Who do they trade with?
Who are the poor countries?
Define by using GDP per capita (usual gauge). Thus China can be considered as a poor country. Among the poorer group, they are richly endowed in labor. Poor countries tend to have more workers than machines.
They’re comparative advantage lies in their labor industries.
According to theory of comparative advantage, the workers will gain higher wages unambiguously.
If China trades, wages go up despite the fact that some sectors are sacking people.
Provide counter examples
W↑ W↑
Pf↑ Pm↓
(K/L) ↑ , ↑MPLf
Look at the assumptions:
If they are not mobile, in the SR,
F M
Lf Lm K
The losing sector will always shrink (refer to PPC), some people will be sacked. Because of immobility, wage will go down. If mobile wage will go up, because workers will leave, they will go from M to F if there’s a need for labor intensive industry.
Wm↓ Wm↓
Pm ↓ (Wm/Pm) ↓ Pf ↑ (Wm/Pf) ↓
(K/Lm ) ↓ - MPLm ↓ (because it has less tools to work with)
In the SR you don’t expect them to be perfectly mobile, you would expect some of the workers to lose, especially those going through the slump.
Policies:
1. Social programs to alleviate the workers lost.
2. Patience
3. Training programs to help the workers.
It will always benefit them in LR, in the SR there will always be someone who suffers.
What if labor is mobile and capital is immobile:
F M
Kf Km
After the final adjustment depicted in the model, the wage rate paid to workers is the same in industries but the rate on capital in the export industry is greater then the rental rate said in the import industry. In the second step , capital owners, (assumed to adjust in the final stage) in the import-competing industry begin to seek ways to obtain