International Economics
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Dominick-Salvatore-International-Economics
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S = 2 P S = 2 P B = 1 P B = P R = 1 P R = P B = 1 W III Nation 1' Nation 2 Nation 1 U E E B R V U VI W S Y X 0 10 20 30 40 50 60 10 20 30 40 50 60 Y X 0 20 80 90 105 120 130 70 95 110 130 100 120 150 FIGURE 7.7. Growth That Improves Nation 1’s Terms of Trade and Welfare. If K (Nation 1’s scarce factor) doubled in Nation 1, production would take place at point R at the unchanged terms of trade of P R = P B = 1 (see the top panel). Nation 1 would exchange 15X for 15Y with Nation 2 and consume at point U on indifference curve V. However, if Nation 1 is large, its terms of trade will improve because it is willing to export less of X at P R = P B = 1. At P S = 2, Nation 1 produces at point S, exchanges 20X for 40Y with Nation 2, and consumes at point W on indifference curve VI. Nation 1’s welfare increases because of both favorable wealth and terms-of-trade effects. The bottom panel shows with offer curves the effect of this type of growth on the volume and the terms of trade when Nation 1 does not and when it does affect its terms of trade. Compare this to Figure 7.5. Salvatore c07.tex V2 - 10/16/2012 10:01 A.M. Page 205 7.5 Growth and Trade: The Large-Country Case 205 The top panel of the figure shows Nation 1’s production frontier before growth and after only K doubles (the dashed production frontier from the right panel of Figure 7.1). At the constant relative commodity price of P B = 1, Nation 1 would produce 110X and 105Y (point R in the top panel), exchange 15X for 15Y with Nation 2, and consume at point U on indifference curve V. With L and population unchanged, this type of growth would increase Nation 1’s welfare. Furthermore, since Nation 1’s trade volume declines at constant prices (from the free trade but pregrowth situation at point E ), Nation 1’s terms of trade also improve, from P R = P B = 1 to P S = 2. At P S = 2, Nation 1 produces 120X and 90Y at point S , exchanges 20X for 40Y, and consumes at point W on indifference curve VI. Thus, Nation 1’s welfare increases because of both wealth and terms-of-trade effects. The bottom panel of Figure 7.7 shows with offer curves the effect of this type of growth on the volume and the terms of trade when Nation 1 does not and when it does affect its terms of trade. The reader should carefully compare Figure 7.7, where both wealth and terms-of-trade effects are favorable (so that Nation 1’s welfare increases for both reasons), with Figure 7.5, where both effects are unfavorable and Nation 1’s welfare declines for both reasons. Case Study 7-3 examines growth and the emergence of new economic giants. (continued) ■ CASE STUDY 7-3 Growth and the Emergence of New Economic Giants New economic giants are emerging among developing countries: Brazil, Russia, India, China, and South Africa (BRICS). China is already an economic giant, India is on the way, and Brazil and Russia are following. South Africa, which was sponsored by China to join in 2011, is much smaller. Table 7.3 provides data on the size and economic importance of the new economic giants in relation to the traditional ones: the United States, the European Union, and Japan. The most important measure of the economic size of a nation is its gross national income (GNI) at purchasing power parity or PPP. This takes into consideration all the reasons (such undervalued exchange rates and nonmarket production— to be discussed in Section 15.2) which lead to serious underestimation of the true GNI of developing nations with respect to that of developed nations. Table 7.3 shows that the largest economies in terms of PPP are the 27-member European Union (EU-27, examined in Chapter 10) and the United States, followed by China, Japan, and India. Russia and Brazil are smaller, and South Africa much smaller. In terms of per capita income (per capita GNI at PPP—as a measure of the standard of living), the United States is clearly first, followed by Japan, and EU-27. Russia, Brazil, South Africa, China, and India follow with much lower per capita incomes—especially India. Growth of GNI, however, is much faster in China and India, and faster in Russia, South Africa, and Brazil than in the traditional ones, and the size of their economies (total GNIs at PPP), except South Africa, are expected to surpass those of the United States and the EU-27 in 30–40 years if Download 7.1 Mb. Do'stlaringiz bilan baham: |
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