CH7-2010

Capital-saving technical progress
It increases the productivity of K proportionately more than the productivity of L.
Labor-saving technical progress
It increases the productivity of L proportionately more than productivity of K.
Y
80 70 60 20 10 0

● ●
A
PB=1
●
PB=PM=1
●
Figure 7-2
B M X
50
130 Y
270
Doubling L and transferring some L and K from the production of commodity Y more than doubles the output of commodity X.
Y
(3) X dose not double. WHY?
130 80 70
●
3.Only K doubles:
B 140 150
●
A 275 X
0
Figure 7-1(2)
7.2B The Rybczynski Theorem
It postulates that at constant commodity prices, an increase in the endowments of one factor will increase by a greater proportion the output of the commodity intensive in that factor and will reduce the output of the other commodity.
7.2 Growth of Factors of Production
7.2A Labor growth and capital accumulation over time
1. 2. 3.
L and K grows at the same rate Only L grows Only K grows
Learning Goals:
Explain how the change in a nation’s factor endowments affects its growth Explain how technological change affects growth, trade and welfare Understand how a change in tastes affects trade, growth and welfare
Figure 7- 4
Y 210
●
Y 150
Ⅶ
Nation 1＊ ＊ PB=PM=1 ● Z Nation 1
E″
160
●
Z
60
E
●
0 Ⅲ 80 70 60 20 10 0 50
●
60
150 X
E
PB=1
●
E′
PB=PM=1
●
●
A
B ●
120 130
M X
270
Summary
Production is protrade; Consumption is also protrade, so the volume of trade expanded proportionately more than the output of commodity X. The welfare of Nation1 is worse off after growth because its labor force doubled while its total consumption less than doubled.
Figure 7-1(1) Y 140 70 60 40 20 0
●
B′ B ● 140 130
●
A 50
280
X
2.Only L doubles:
(1) The output of both commodities grows and K/L will fall. WHY? (2) The output of X grows faster than Y and it shifts more along the X-axis;
7.4 Growth and Trade: The Small Country Case
7.4A The effect of growth on trade
The output of exportable commodity The output of importable commodity
1.
Protrade : The growth or consumption effect leads to greater than proportionate expansion of trade Antitrade : Smaller than proportionate expansion of trade Neutral : Proportionate increases.
7.2B The Rybczynski Theorem
7.2A Labor growth and capital accumulation
1. L and K grows at the same rate
•Balanced growth: equal rates of L and K growth •The production frontier shifts out evenly at all directions
Chapter 7 Economic Growth and International Trade
7.1 Introduction 7.2 Growth of Factor of Production 7.3 Technical Progress 7.4 Growth and Trade: The Small Country Case 7.5 Growth and Trade: The Large Country Case 7.6 Growth, Change in Tastes, and Trade in Both Nations
7.3B Technical Progress and Nation’s Production Frontier
Neutral technical progressY 140 Figure 7-3
1. In both commodities; (balanced growth: F71(1))
70 60 20 0
For example, if only L grows in Nation 1, the output of X expands more than proportionately, while the output of Y declines at constant Px/Py.
The growth of L only and the Rybczynski Theorem
Types of analysis:
Static analysis Dynamic analysis:
It deals with the time path and the process of adjustment itself.
Comparative static analysis:
It analyzes the effect on the equilibrium position resulting from a change in underlying economic conditions and without regard to the transitional period and process of adjustment itself.
2.
3.
Protrade production :
The output of the nation’s exportable commodity increases proportionately more than the output of its importable commodity.
Protrade consumption:
130 80 70
●
A B 140 150 B′ X
●
70 60 20 0
●
●
A′
●
0
275 X
A B 50 100
●
140
260 280
In the absence of trade, all types of technical progress tend to increase the nation’s welfare, because of the higher production frontier and the same L and population.
●
A′ ● B
●
2.
In X only (or Y only).
●
A B′ X
50
100
140
260 280
Difference between F7-3 and F7-1(2)
Figure 7-1(2) Y
Technical Progress
Y 140 Figure 7-3
Factor Growth
The nation’s consumption of its importable commodity increases proportionately more than consumption of its exportable commodity.