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国际经济学Chapter 2

CHAPTER 2

Labor Productivity and Comparative Advantage:

The Ricardin Model

*Countries engage in international trade for two basic reasons :·Comparative advantage : countries are different in technology (chapter 2) or resource (chapter 4).

·Economics of scale (chapter 6).

*All motives are at work in the real world but only one motive is present in each trade model.

§1. The Concept of Comparative Advantage

1.Opportunity cost: The opportunity cost of roses in terms of computers is the number of computers that could have been produced with the resources used to produce a given number of roses.

Table 2-1 Hypothetical Changes in Production

Million Roses Thousand Computers United States －10 ＋100

South America ＋10 －30

Total 0 ＋70

https://www.sodocs.net/doc/c716946950.html,parative advantage : A country has a comparative advantage in producing a good if the opportunity cost of producing that good in terms of other goods is lower in that country than it is in other countries.

·Denoted by opportunity cost.

·A relative concept : relative labor productivity or relative abundance.

3. Comparative advantage and trade: Trade between two countries can benefit both countries if each country exports the goods in which it has a comparative advantage.

§2. A One-Factor Economy

1.Production possibilities : a LC Q C + a LW Q LW≤L

Figure 2-1Home’s Production Possibility Frontier

2.Relative price and supply

·Labor will move to the sector which pays higher wage.

·If P C/P W>a L C/a LW (P C/a L C>P W/a LW, wages in the cheese sector will be higher ), the economy will specialize in the production of cheese. ·In a closed economy, P C/P W =a L C/a LW.

§3. Trade in a One-Factor World

·Model : 2×1×2

·Assume: a L C/a LW< a L C*/a LW*

Home has a comparative advantage in cheese.

Home’s relative productivity in cheese is higher.

Home’s pretrade relative price of cheese is lower than foreign. ·The condition under which home has this comparative advantage involves all four unit labor requirement, not just two.

(If each country has absolute advantage in one good respectively, will there exist comparative advantage?)

1.Determining the relative price after trade

·Relative price is more important than absolute price, when people make decisions on production and consumption.

·General equilibrium analysis: RS equals RD. (world general equilibrium)

·RS: a “step”with flat sections linked by a vertical section.(L/a L C)/(L*/a LW*)

Figure 2-3World Relative Supply and Demand

·RD: subsititution effects

·Relative price after trade: between the two countries’ pretrade price. (How will the size of the trading countries affect the relative price after trade? Which country’s living condition improve more? Is it possible that a country produce both goods?)

2.The gains from trade

The mutual gain can be demonstrated in two alternative ways.

·To think of trade as an indirect method of production :

(1/a L C)( P C/P W)>1/a LW or P C/P W>a L C/a LW

·To examine how trade affects each country’s possibilities of consumption.

Figure 2-4Trade Expands Consumption

Possibilities

(How will the terms of trade change in the long-term? Are there income distribution effects within countries? )

3.A numerical example :

·Two crucial points :

(1)When two countries specialize in producing the goods in which they have a comparative advantage, both countries gain from trade.

(2)Comparative advantage must not be confused with absolute advantage; it is comparative, not absolute, advantage that determines who will and should produce a good.

Table 2-2 Unit Labor Requirements

Cheese Wine

Home a LC=1 hour per pound a LW=2 hours per gallon

Foreign a*L C=6 hours per pound a*L W=3 hours per gallon

Analysis: absolute advantage; relative price; specialization;

the gains from trade.

4.Relative wages

·It is precisely because the relative wage is between the relative productivities that each country ends up with a cost advantage in one good.

·Relative wages depend on relative productivity and relative demand on goods.

Special box : Do wages reflect productivity ?

Table 2-3 Changes in Wages and Unit Labor Costs

Compensation Compensation Annual Rate of Increase

per Hour, 1975Per Hour,2000in Unit Labor Costs,

(US=100) (US=100) 1979-2000

United States 100 100 1.1

South Korea 5 41 0.7

Taiwan 6 30 3.6

Hong Kong 12 28 NA Singapore 13 37 NA Source:Bureau of Labor Statistics（foreign labor statistics home page, https://www.sodocs.net/doc/c716946950.html,/fls/home.htm）

·Debates about relative wages and relative labor productivity. ·Long-run convergence in productivity produces long-run convergence in wages.

§4. Misconceptions About Comparative Advantage

The proposition that trade is beneficial is unqualified. That is, there is no requirement that a country be “competitive”or that the trade be “fair”.

1.Productivity and competitiveness

myth1:Free trade is beneficial only if your country is strong enough to stand up to foreign competition.

·The gains from trade depend on comparative advantage rather than absolute advantage.

·The competitive advantage of an industry depend on relative labor productivity and relative wage.

·Absolute advantage: neither a necessary nor a sufficient condition for comparative advantage (or for the gains from trade).

2.The pauper labor argument

myth2: Foreign competition is unfair and hurts other countries when it is based on low wages.

·Whether the lower cost of foreign export goods is due to high productivity or low wages does not matter. All that matter to home is that it is more efficient to “produce” those goods indirectly than to produce directly.

3.Exploitation

myth3:Trade exploits a country and make it worse off if its workers receive much lower wage than workers in other nations. ·Whether they and their country are worse off?

·What is the alternative ?(if it refuse to trade, real wages would be even lower ).

§5. Comparative Advantage With Many Goods

·Model: 2×1×n

·For any good we can calculate a Li /a Li*, label the goods so that the lower the number, the lower this ratio.

a L1/a L1*

(or a L1*/a L1>a L2*/a L2>…>a LN*/a LN)

1.Relative wages and specialization

·Any good for which a Li*/a Li>w/w* will be produced in home.

(Relative productivity is higher than it’s relative wage, wa Li

Table 2-4 Home and Foreign Unit Labor Requirements

Relative Home

Home Unit Labor Foreign Unit Labor Productivety