Int'l Econ: Ch 10

Brain Drain

Drain—process whereby skilled workers leave their homeland and relocate abroad.

Immizerizing Growth

Growth—growth that results in a reduction of the country's welfare level. Refer to Figure 10.4.

Reasons for Migrating

Better economic circumstances in another country. Refuge from political tyranny or devastation. Reunion with other family members.

Multinational Corporations (MNCs)

firms that own and operate capital in one or more foreign countries.

Brawn Drain

the outflow of unskilled workers to other countries.

Neutral Economic Growth

A proportionate increase in all resources and consumption so that trade also expands proportionately to the growth of the economy. After growth, the economy continues to produce and consume the two goods in the same ratios as before growth (refer to Figure 10.2).

Trade and Growth

Economic growth is shown graphically as an outward shift of the country's production possibility frontier (PPF).

MPL

MPL—the additional amount of output that can be produced with the addition of one more worker to the production process.

Economic Growth

An economy is said to grow when its total real output or gross domestic product (GDP) rises. -Per capita GDP is a measure of a country's standard of living. For standard of living to rise over time, GDP must grow faster than the population.

Arguments Against Import-substitution Strategy

The high barriers to trade rarely come down. This strategy limits the development of industries that supply inputs to the protected industries. Imported capital goods are used extensively in local production. The strategy encourages citizens to spend scarce resources to lobby or bribe government officials to protect their industries.

Dutch disease.

The phenomenon of a boom or good fortunes for one part of a country's economy eventually leading to very bad times for the economy as a whole

Import-Substitution Development Strategy

These policies are designed to promote rapid industrialization and development by erecting high barriers to foreign goods to encourage local production.

Outward-Looking Development Strategy

These policies involve government identifying or targeting industries in which the country has potential comparative advantage. Successful country examples include Japan, South Korea, Singapore, and Taiwan

Advantages of Primary Export-led Development Strategy

This strategy would encourage more intensive use of existing or abundant resources. It could help attract foreign investment. It may provide linkage effects or benefits to other industries as a result of one industry expanding.

Protrade Biased Growth

When growth occurs as a result of an increase in the resource used intensively in the production of export goods, then the output of export goods will rise relative to import production, and international trade will expand by more than the rate of growth of GDP. This is called protrade biased growth (refer to Figure 10.3 and Table 10.2). Graphically, the PR line rotates away from the CR line.

Antitrade Biased Growth

When growth occurs as a result of an increase in the resource used intensively in the production of import goods, then the output of import goods will rise relative to the output of export goods, and the international trade of this country will fall. This is antitrade biased growth (refer to Table 10.3). Graphically, the PR line rotates toward the CR line indicating a tendency toward autarky.

Labor-saving (capital-saving) technological change

an innovation that leads to a reduction in the use of labor (capital) relative to other factors in the production of a given level of output.

Neutral technological change

change—an innovation that reduces by an equi-proportionate amount the quantity of factors required to produce a given level of output

Direct Foreign Investment

happens when a domestic firm acquires ownership or control of the operations of a foreign firm

Technological (technical) change

occurs when the same amount of output can be produced with fewer factor inputs, or when the same amount of inputs can produce greater amounts of output.

Primary Export-Led Development Strategy

strategy involves policies designed to exploit natural comparative advantage by increasing production of a few export goods most closely related to the country's resource base. Country examples include Columbia (coffee), Mexico and Nigeria (petroleum), and Malaysia (rubber).

Economic Development

the achievement of a quality of life for the average citizen of a country that is comparable to that enjoyed by the average citizen of a country with a modern economy, such as the U.S. --Economic development is characterized by: High levels of consumption Broad-based educational achievement Adequate housing Access to high-quality health care, etc.

Diminishing returns to labor

the fact that as more and more workers are added to the production process, holding all other factors constant, the marginal product of labor will eventually decline.

VMPL

the monetary value of the marginal product of labor or, alternatively, the marginal revenue to producers from hiring the last worker. In equation form: VMPL=P x MPL