1. The world trade (calculated as trade volume/world GDP) has increased over time. What are the main reasons for a more-than-ever integrated world? Briefly explain.

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1. The world trade (calculated as trade volume/world GDP) has increased over time. What are the main reasons for a more-than-ever integrated world? Briefly explain. (3 points)

2. What is the basis for trade in the Ricardian trade model? Briefly explain. (3 points)

3. What is the basis for trade in the Hecksher-Ohlin trade model? Briefly explain. (3 points)

4. Suppose that Brazil is capital-abundant and Chile is natural resource-abundant. If wine is natural resource intensive and aircrafts are capital intensive, then according to the Heckscher-Ohlin Theorem, what should Brazil and Chile specialize in and export? (3 points)

5. Suppose that when Japan opens to free trade, it imports beef, a labor-intensive good. Is Japan capital-abundant or labor-abundant? What theorem helps you answer this question? (3 points)

6. What is the intuition behind Stolper-Samuleson theorem? Briefly explain. (3 points)

7. Prove that when exports = imports for an industry, then GLI = 1 for that industry. Prove that when either exports or imports = 0 for an industry, then GLI = 0 for that industry. GLI stands for the Grubel-Lloyd index. (3 points)

8.1. Fill in the last column with the GLI in the table given below: (3 points)

Products

Value of exports (in mil.  $)

Value of imports (in mil. $)

GLI

Vegetables

4,093

3,925

 

Carrots

247

185

 


8.2. Which GLI is larger, the one that you calculated for the Vegetables category or for the Carrots category? Briefly explain why. (3 points)

9. Give example of a product (not the same as the one on lecture notes slides) that is a good candidate for the product-cycle theory. Briefly justify your choice. (3 points)


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