Chapter 2
Approximately what percent of all world production of goods and services is exported to other countries?
30%
In 2013, what percent of all world consumption (private and public, including real investment) was imported?
30%
A century ago, most British imports came from relatively distant locations: North America, Latin America, and Asia. Today, most British imports come from other European countries. How does this fit in with the changing types of goods that make up world trade?
A century ago trade was mostly in commodities that were not produced in Europe. Today, 61 percent of trade is in manufactured goods, and as the gravity model predicts, Britain trades with the other large European economies.
Why does the gravity model work?
Large economies tend to have large incomes and tend to spend more on imports
In general, which of the following tends to promote the probability of trade volumes between two countries?
Linguistic and/or cultural affinity, sizes of economies, mutual membership in preferential trade agreements, and historical ties
Does this mean that if the GDP of every country in the world doubled, world trade would quadruple?
No
Over the last few decades, East Asian economies have increased their share of world GDP. Similarly, intra-East Asian trade has grown as a share of world trade. More than that, East Asian countries do an increasing share of their trade with each other. Using the gravity model, explain why East Asian countries do an increasing share of their trade with each other.
Since the GDP of East Asian countries has grown, the product of any two East Asian countries' GDP is now larger. And as the gravity model predicts, the trade volume between them has grown.
The two neighbors of the United States do a lot more trade with the United States than European economies of equal size.
This is consistent with predictions from gravity models
Canada and Australia are English-speaking countries with populations that are not too different in size (Canada's is 60 percent larger). But Canadian trade is twice as large, relative to GDP, as Australia's. Why is this the case?
Transportation costs for imports and exports are higher in Australia because the distance goods must travel and Canada is close to a major economy
Mexico is quite close to the U.S., but it is far from the European Union. So it makes sense that it trades largely with the U.S. Brazil is far from both, so its trade is split between the two. T/F?
True. The gravity model predicts trade volume is proportional to the product of the GDPs of the trading partners and inversely related to the distance from each other.
A century ago each country's exports were shaped largely by
climate and natural resources
The sources of modern trade are largely rooted in
country differences in human and human-created resources
The Ricardian trade model put forth by British economist David Ricardo nearly two centuries ago is one that
expounds principles still valid in today's world
Since World War II (the early 1950s), the proportion of most countries' production being used in some other country
increased
Since the early 1970s, world's trade as a share of world production has
increased
The current process of increasing economic integration among national economies, better known as globalization,
is actually the world's second wave of such integration. According to economic historians, the ongoing enhancement of economic linkages between nations is not new. The world's first wave of globalization began around 1840 and ended in 1914.
In the current Post-Industrial economy, international trade in services (including banking and financial services)
is relatively small
In the early 20th century, the United Kingdom exported mainly
manufactured goods
In the present, most of the exports from China are in
manufactured goods
The gravity model suggests that over time
the value of trade between two countries will be proportional to the product of the two countries' GDP
The gravity model explains why
trade between Sweden and Germany exceeds that between Sweden and Spain
The nature of political battles over trade in the modern era
typically centers on issues involving the trade-induced devaluation of labor skills. Particularly in the developed world, where workers are seeing the value of their skills diminished by imports coming increasingly from the developing countries.