Ans. 1: The gravity model of international trade depicts that bilateral trade happens between the countries based on their economic size and also depending on the distances between the two units or the countries. It has been stated in the model that gravity relationship occurs in almost every trade as the trade cost that in included increases with the distance. This model of trade suggests that the relative size of the economy attracts the country while the distances between the two countries weaken the attractiveness for the countries. The gravity model helps in explaining the patter of trade for various countries (Kabir, Salim & Al-Mawali, 2017). Britain in the 19th century was trading with various countries at distant locations like North America, Africa, Latin America, and Asia. But in recent time Britain trades has moved down specifically to the European countries. Trade plays an important role in the economy of Britain and nearly half of the GDP of Britain has imports and exports in it. The imports of the country mainly include food products while the exports are of transport and machinery and transport. Britain's economy has majorly dominated by trade with the U.S. and other countries in the 19th century because of the growth rate and the products in those countries. Britain was one of the most prosperous countries in the eighteenth-century and due to industrialization development took place in Great Britain. The other countries in Europe in the nineteenth century were not that developed nor do they were so much developed. The development in the other countries of Europe began in 1914 after the World War started in the year 1941. At this point, countries started getting into diplomatic conversations. The rural aspect of Europe change and development started taking place. The population in major countries of Europe improved with the development of New Food Crops. Commercialization took place and the sale of produced foods increased.
Great Britain even being a country of Europe was exporting food products for a long from the United States, Africa, and Asia. But when the other countries in the European nation's evolved Great Britain moved its trade to these countries. The benefit derived from this will be as per the Gravitational model. The distance between these countries will be lesser from Great Britain then North America, Africa, Latin America etc. So, to reduce its trade cost by deriving the same benefits Britain move its trade from these distant countries to European countries. Today the highest trade of Britain is with European countries. 53% of the imports of Britain are covered with the European Union at present. So, the Gravity model took hold once the countries in Europe developed and the trading patterns of Europe changed accordingly.
Ans.2: Various models are used for analyzing the dynamics of international trade. Two such models are the Ricardian and Heckscher-Ohlin model. Both these models describe international trade patterns among various nations. But both have a different approach to trade for the countries.
In the Ricardian model of trade, the focus is laid on the comparative advantage. The model of Ricardian focuses on only one factor of production which is labor. The model of Ricardian states that the trade between the two countries happen only because of the differences in the productivity of labor. This difference in productivity of labor occurs because of the differences in the technology. Technology helps producing goods and services for the labor in a better way. Though this model can be applied only in the short run period and technologies for countries develop over some time. Technology improves internationally within a period and reduces the comparative advantage (Jones, 2017). So, as per this model, the basic reason for trade is labor productivity which happens because of the technological advancement in one country that improves production.
But according to the Heckscher-Ohlin model, the factors of production are two i.e. Labor and capital. This model states that comparative advantage prevails because of differences in the number of factors that are relative in each country. This model suggests that countries should be producing and exporting those goods that are in abundance and accordingly import those goods whose resources are not abundant in the country and have a short supply (Etro, 2017). This model is different from the comparative advantage theory or Richardian model as that theory focuses mainly on the process of production while in Ohlin model comparative advantage is dependent on the resources that are in abundance. The cheapest goods will be produced depending on the availability of resources. Like capital abundant country will produce goods that are capital intensive, while labor abundant country will produce labor-intensive goods. Also, under this model it has been assumed that the countries have the same technology that is running between them and the only difference is between the availability of the resources for the country.
Thus, Ricardian and H-O theory differ by explaining the trade patterns that are international in the country. One model only considers the production process as the main reason for trade. This advantage is because of technological advancement in one country. While the other model considers the availability of resources that helps in facilitating the trade in the country.
Ans. 3: International Trade takes place due to a variety of reasons. One of the major reasons for the trade to take place in the presence of economies of scale. Trade may or may not come out as a reason for comparative advantages. There are various countries like Japan, the United States etc. who are identical in all the aspects of resources. Still the countries trade and find it advantageous for their economy. These countries have a similar level of technology and also various other resources are the same. So according to the Ricardian and H-O model, there are no stimuli for doing international trade. Yet trade between these countries prevail. This trade happens because of economies of scale in countries. Economies of scale refer to the production that happens at a large scale (Wu & Chen, 2017). This helps in getting the output at a lower cost.
Like a product X in Japan is being manufactured in large quantities because of the demand that prevails in the country and also to other nations. While the same product is being manufactured in America at a higher cost due to fewer units of production. Then America would like to import the product from Japan rather than producing it in its own country. This is mainly because of economies of scale which is enjoyed by Japan because of demand. The cost is lower than helps its product gain an advantage in the market.
Thus, it depicts that trade may or may not happen because of comparative advantage as at times there are countries that have similar resources available at disposal. Countries like China, Japan, and the USA etc. They have the same technology present at their disposal and also have the labor available to them. But still these countries trade because of the presence of economies of scale. China has intensive capacity to produce cheap technological items like smartphones, U.S and Japan are producing their phones too but still, they do trade with each other. As the other two countries do not enjoy the benefit of economies of scale. They produce costly smartphones, so to make sure that everyone in their country can afford the technology, countries like Japan and USA trade with China. So, even after having the similar resources, it is required that the countries trade because of economies of scale in other countries.
Ans.4: In the global market nowadays, labor has become an important factor and the demand for the foreign workers in countries where labors are imported has become one of the main reason for the movement of labor from one country to another. These migrations create an economic impact on both nations. The countries from which the labor travel might face an issue in the short run but it is beneficial for the country in long run. Also, the country that is attaining the labor will get a benefit by decreasing the wages domestically and by adding the benefits to the budget for the public (Tabassum et al., 2017).
The country that is sending the labor will have remittance funds that are earned by the emigrants in other nations while for the other the wages will decline for the country. Also, through migration, there will be a benefit of marginal product in labor. The change in output due to addition in the unit of factor is defined as marginal product. When labor moves down to another country, there comes a change in the output that is being produced. This change is termed as a marginal increase in labor. The basic advantage of labor migration is on the wage rate. Labor moves from one place to another in search of better wages. This is a two-way beneficial process. When the labor moves from a low-income country to a high-income country, it raises the flow in the home country while in a high-income country cheap labor becomes available than the present rate (Tsourapas, 2018).
The graph given in the question explains the same phenomena. Two countries are represented. Lm being the home country while Ly being a foreign country. In the present situation or without immigration both the countries labor availability is at L1. Wages for home country through MPL slope stands at point F. This means that at L1 labor country M is providing wages at Wm level. While if a foreign country i.e. Ly or Y is considered than the wage rate as per MPL Y is at point D. This means that the wage rate at L1 labor for country Y is at Wy. Wy and Wm is the difference of wages because of which labor will move from one country to another. When the labor will migrate, the quantity of labor for country Y will increase to Le while the labor quantity in country X will reduce to Le. This will cut the slopes of marginal productivity at point E. So, due to migration, the wage rate in both the countries will come at We. This is beneficial for both the countries as Country M has an abundance of labor due to which wages provided to the labor were lower while in country Y labor were less due to which wages were high. When the labor moved from one country to another, the marginal productivity of labor increased in the foreign country while marginal productivity in the home country reduced and came to an appropriate labor. Thus, these are the effects that are created on the marginal product of labor through migration between the two nations. So, the migration effect brings an equilibrium state of wages in both countries. Reduces where high wage rate prevails while increases in lower wage rate.
Ans. 5: Infant Industry protection provides a solution for the industrialization growth in the countries that are developing. This argument is made basically for the protection of trade and favors the industries which are at the nascent stage. Infant industries refer to those that are developing in the present situation of the country (Mustafa, 2020). It is required that they get protection from the older industries so that they can attain economies of scale. Suppose in a country Y there is an industry A which has just started developing and is trying to establish its place in the country. There is another country X which is a developed country and their industry for A products has already been developed. They have established themselves in the markets and have attained economies of scale. So, Country Y will have a choice to buy the product from its home country or import it from Country X which will provide a cheaper good. But at the same time, if the product is imported from Country x, then industries in Country Y will not be able to survive as they won't be able to face competition in the market. So, for industrialization in its own country and improvement in its economy, Country Y needs to put restrictions on the import by adding tariffs and other costs to provide a chance to industry A to survive in its home country. Or else there is no chance of competition between the industries that have already attained economies of scale while the one that is in their infant stage.
In the graph provided in the question, two industries have been considered from two different countries that are from Switzerland and Nepal. Nepal has been considered as a country that has already attained economies of scale. While Switzerland is developing its industries. The long term cost for the product will be at P1. Since Switzerland is just starting its industry, the cost for the product is higher for a longer duration than for the same product that is produced by Nepal. It reaches the appropriate price at an early stage. To protect the growth of industry in Switzerland, the country needs to put on tariffs for letting the industry in home country thrive. As can be seen in the graph at the later stages industry of Switzerland can match the prices as they are appropriate that is at the P1 level. Till that time, the country needs protection that can be provided through higher charges.
So, for industrialization to prevail in the country it is required that infant industries are protected so that they are not lost while competing with the industries that already have attained economies of scale. Once the industry is established tariffs can be reduced and then they can function accordingly.
Ans.6: Anti-globalization movement is also called a social movement that was done for economic globalization. The movement was carried out to criticize the idea of multinational organizations having powers that are unregulated and also financial markets that are deregulated. The movement was aimed at the legal status of corporate personhood and radical measures of privatization for the World Bank, IMF, and the World Trade Organization. These movements started after the 1999 Seattle WTO protest. 40000 protestors were protesting against the economic globalization that include IMF or World Bank (Conway, 2016). The basic protest was based on the free trade policies. The workers focused on their rights and sustainable economies and also various social and environmental issues. So, the movement was carried out to end the corporate personhood and free movement of trade between countries.
The aim for anti-globalization protest was appropriate as global markets would have led to the growth rate which is falling. Also, the recession in the industry could have increased especially in America and other major industrial countries. It was also feared that the unhealthy competition will be promoted due to globalization. Labors will suffer as wages and their rights will be hampered with free trade movement (Anwan, 2016). Thus, the aim of carrying out the anti-globalization activities was appropriate at the time it was conducted.
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Conway, J. M. (2016). Anti‐Globalization Movements. The Wiley Blackwell Encyclopedia of Gender and Sexuality Studies, 1-5.
Etro, F. (2017). The Heckscher–Ohlin model with monopolistic competition and general preferences. Economics Letters, 158, 26-29.
Jones, R. W. (2017). The Main Contribution of the Ricardian Trade Theory. In 200 Years of Ricardian Trade Theory (pp. 101-115).
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Mustafa, D. I. (2020). Infant Industries Protectionism: The Case of the Automobile Industry in Malaysia. International Journal of Business and Economics Research, 9(2), 68.
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Tsourapas, G. (2018). Labor migrants as political leverage: Migration interdependence and coercion in the Mediterranean. International Studies Quarterly, 62(2), 383-395.
Wu, X. F., & Chen, G. Q. (2017). Energy use by Chinese economy: A systems cross-scale input-output analysis. Energy Policy, 108, 81-90.
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