CH02-Labor-productivity-comparative-advantage-the-Ricardian-model(国际经济学-厦门大学-陈涛)

CHAPTER2LABORPRODUCTIVITYCOMPARATIVEADVANTAGETHERICARDIANMODEL1ChapterOrganizationIntroductionTheConceptofComparativeAdvantageAOne-FactorEconomyTradeinaOne-FactorWorldComparativeAdvantagewithManyGoodsAddingTransportCostsandNontradedGoodsSummary2Countriesengageininternationaltradefortwobasicreasons:Theyaredifferentfromeachotherintermsofclimate,land,capital,labor,andtechnology.Theytrytoachievescaleeconomiesinproduction.TheRicardianmodelisbasedontechnologicaldifferencesacrosscountries.Thesetechnologicaldifferencesarereflectedindifferencesintheproductivityoflabor.Introduction3OnValentine’sDaytheU.S.demandforrosesisabout10millionroses.GrowingrosesintheU.S.inthewinterisdifficult.Heatedgreenhousesshouldbeused.Thecostsforenergy,capital,andlaboraresubstantial.Resourcesfortheproductionofrosescouldbeusedtoproduceothergoods,saycomputers.TheConceptof

ComparativeAdvantage4OpportunityCostTheopportunitycostofrosesintermsofcomputersisthenumberofcomputersthatcouldbeproducedwiththesameresourcesasagivennumberofroses.ComparativeAdvantageAcountryhasacomparativeadvantageinproducingagoodsiftheopportunitycostofproducingthatgoodsintermsofothergoodsislowerinthatcountrythanitisinothercountries.TheConceptof

ComparativeAdvantage5SupposethatintheU.S.10millionrosescanbeproducedwiththesameresourcesas100,000computers.SupposealsothatinSouthAmerica10millionrosescanbeproducedwiththesameresourcesas30,000computers.ThisexampleassumesthatSouthAmericanworkersarelessproductivethanU.S.workers.TheConceptof

ComparativeAdvantage6Ifeachcountryspecializesintheproductionofthegoodswithloweropportunitycosts,tradecanbebeneficialforbothcountries.RoseshaveloweropportunitycostsinSouthAmerica.ComputershaveloweropportunitycostsintheU.S.Thebenefitsfromtradecanbeseenbyconsideringthechangesinproductionofrosesandcomputersinbothcountries.TheConceptof

ComparativeAdvantage7Table2-1:HypotheticalChangesinProductionTheConceptof

ComparativeAdvantage8TheexampleinTable2-1illustratestheprincipleofcomparativeadvantage:Ifeachcountryexportsthegoodsinwhichithascomparativeadvantage(loweropportunitycosts),thenallcountriescaninprinciplegainfromtrade.Whatdeterminescomparativeadvantage?Answeringthisquestionwouldhelpusunderstandhowcountrydifferencesdeterminethepatternoftrade(whichgoodsacountryexports).TheConceptof

ComparativeAdvantage9AOne-FactorEconomyAssumethatwearedealingwithaneconomy(whichwecallHome).Inthiseconomy:Laboristheonlyfactorofproduction.Onlytwogoods(saywineandcheese)areproduced.Thesupplyoflaborisfixedineachcountry.Theproductivityoflaborineachgoodsisfixed.Perfectcompetitionprevailsinallmarkets.10ThetechnologyofHome’seconomycanbesummarizedbylaborproductivityineachindustry,expressedintermsofunitlaborrequirements:Theunitlaborrequirementisthenumberofhoursoflaborrequiredtoproduceoneunitofoutput.DenotewithaLW

theunitlaborrequirementforwine(e.g.ifaLW=2,thenoneneeds2hoursoflabortoproduceonegallonofwine).DenotewithaLCtheunitlaborrequirementforcheese(e.g.ifaLC=1,thenoneneeds1houroflabortoproduceapoundofcheese).Theeconomy’stotalresourcesaredefinedasL,thetotallaborsupply(e.g.ifL=120,thenthiseconomyisendowedwith120hoursoflaboror120workers).AOne-FactorEconomy11ProductionPossibilitiesTheproductionpossibilityfrontier(PPF)ofaneconomyshowsthemaximumamountofagoods(saywine)thatcanbeproducedforanygivenamountofanother(saycheese),andviceversa.Orillustratesthedifferentmixesofgoodstheeconomycanproduce.ThePPFofoureconomyisgivenbythefollowingequation:

aLCQC+aLWQW=L (2-1)Fromourpreviousexample,weget:

QC+2QW=120AOne-FactorEconomy12L/aLWL/aLCFigure2-1:Home’sProductionPossibilityFrontierAOne-FactorEconomyAbsolutevalueofslopeequalsopportunitycostofcheeseintermsofwineFPHomewineproduction,QW,ingallonsHomecheeseproduction,QC,inpoundso13RelativePricesandSupplyTheparticularamountsofeachgoodsproducedaredeterminedbyprices.TherelativepriceofgoodsX(cheese)intermsofgoodsY(wine)istheamountofgoodsY(wine)thatcanbeexchangedforoneunitofgoodsX(cheese).Examplesofrelativeprices:IfapriceofacanofCokeis$0.5,thentherelativepriceofCokeistheamountof$thatcanbeexchangedforoneunitofCoke,whichis0.5.Therelativepriceofa$intermsofCokeis2cansofCokeperdollar.AOne-FactorEconomy14DenotewithPCthedollarpriceofcheeseandwithPW

thedollarpriceofwine.DenotewithwWthedollarwageinthewineindustryandwithwCthedollarwageinthecheeseindustry.Therearenoprofitsinourone-factormodel,thehourlywagerateinthecheesesectorwillequalthevalueofwhataworkercanproduceinanhour,PC/aLC.ThehourlywagerateinthewinesectorwillbePW/aLW.AOne-FactorEconomy15Theaboverelationsimplythatiftherelativepriceofcheese(PC/PW)exceedsitsopportunitycost(aLC/aLW),thentheeconomywillspecializeintheproductionofcheese.OrPC/aLC>PW/aLW.Intheabsenceoftrade,bothgoodsareproduced,andthereforePC/PW=aLC/aLW.AOne-FactorEconomy16TradeinaOne-FactorWorld

Assumptionsofthemodel:Therearetwocountriesintheworld(HomeandForeign).Eachofthetwocountriesproducestwogoods(saywineandcheese).Laboristheonlyfactorofproduction.Thesupplyoflaborisfixedineachcountry.Theproductivityoflaborineachgoodsisfixed.Laborisnotmobileacrossthetwocountries.Perfectcompetitionprevailsinallmarkets.AllvariableswithanasteriskrefertotheForeigncountry.17AbsoluteAdvantageAcountryhasanabsoluteadvantageinaproductionofagoodsifithasalowerunitlaborrequirementthantheforeigncountryinthisgoods.AssumethataLC<a*LC

andaLW<a*LWThisassumptionimpliesthatHomehasanabsoluteadvantageintheproductionofbothgoods.AnotherwaytoseethisistonoticethatHomeismoreproductiveintheproductionofbothgoodsthanForeign.EvenifHomehasanabsoluteadvantageinbothgoods,beneficialtradeispossible.Thepatternoftradewillbedeterminedbytheconceptofcomparativeadvantage.TradeinaOne-FactorWorld

18ComparativeAdvantageAssumethataLC/aLW<a*LC/a*LW (2-2)ThisassumptionimpliesthattheopportunitycostofcheeseintermsofwineislowerinHomethanitisinForeign.Inotherwords,intheabsenceoftrade,therelativepriceofcheeseatHomeislowerthantherelativepriceofcheeseatForeign.HomehasacomparativeadvantageincheeseandwillexportittoForeigninexchangeforwine.TradeinaOne-FactorWorld

19F*P*L*/a*LWL*/a*LCForeignwineproduction,Q*W,ingallonsForeigncheeseproduction,Q*C,

inpounds+1Figure2-2:Foreign’sProductionPossibilityFrontierTradeinaOne-FactorWorld

20DeterminingtheRelativePriceAfterTradeWhatdeterminestherelativeprice(e.g.,PC/PW)aftertrade?Toanswerthisquestionwehavetodefinetherelativesupplyandrelativedemandforcheeseintheworldasawhole.Therelativesupplyofcheeseequalsthetotalquantityofcheesesuppliedbybothcountriesateachgivenrelativepricedividedbythetotalquantityofwinesupplied,(QC

+Q*C

)/(QW

+Q*W).Therelativedemandofcheeseintheworldisasimilarconcept.TradeinaOne-FactorWorld

212RD'RD1Q'aLC/aLWa*LC/a*LWRSFigure2-3:WorldRelativeSupplyandDemandTradeinaOne-FactorWorld

Relativepriceofcheese,PC/PWRelativequantityofcheese,QC+Q*C

QW+Q*WL/aLCL*/a*LW22TradeinaOne-FactorWorldFirst,theRScurveshowsthatthereisnosupplyofcheeseiftheworldpricedropsbelowaLC/aLW.-AssumeaLC/aLW<a*LC/a*LW,,Homewillspecializeintheproductionofcheese.-HomewillspecializeintheproductionofwinewheneverPC/PW<aLC/aLW,orPC/aLC<PW/aLW.-Similarly,ForeignwillspecializeinwineproductionwheneverPC/PW<a*LC/a*LW.Second,whentherelativepriceofcheese,PC/PW=aLC/aLW,Homeworkersareindifferentbetweenproducingcheeseandwine.Wehaveaflatsectionofthesupplycurve.23TradeinaOne-FactorWorld

Third,forPC/PW>a*LC/a*LW,bothHomeandForeignwillspecializeincheeseproduction.Therewillbenowineproduction,sothattherelativesupplyofcheesewillbecomeinfinite.Fourth,AtPC/PW=a*LC/a*LW,Foreignworkersareindifferentbetweenproducingcheeseandwine.Weagainhaveaflatsectionofthesupplycurve.Fifth,aLC/aLW<PC/PW<a*LC/a*LW,therelativesupplyofcheeseis(L/aLC)/(L*/a*LW).24TheGainsfromTradeIfcountriesspecializeaccordingtotheircomparativeadvantage,theyallgainfromthisspecializationandtrade.Wewilldemonstratethesegainsfromtradeintwoways.First,wecanthinkoftradeasanewwayofproducinggoodsandservices(thatis,anewtechnology).TradeinaOne-FactorWorld

25Anotherwaytoseethegainsfromtradeistoconsiderhowtradeaffectstheconsumptionineachofthetwocountries.Theconsumptionpossibilityfrontierstatesthemaximumamountofconsumptionofagoodsacountrycanobtainforanygivenamountoftheothercommodity.Intheabsenceoftrade,theconsumptionpossibilitycurveisthesameastheproductionpossibilitycurve.Tradeenlargestheconsumptionpossibilityforeachofthetwocountries.TradeinaOne-FactorWorld

26TradeinaOne-FactorWorld

Figure2-4:TradeExpandsConsumptionPossibilitiesTFPT*P*F*(a)Home(b)ForeignQuantityofwine,QWQuantityofcheese,QCQuantityofwine,Q*WQuantityofcheese,Q*C27SettingUptheModelBothcountriesconsumeandareabletoproducealargenumber,N,ofdifferentgoods.RelativeWagesandSpecializationThepatternoftradewilldependontheratioofHometoForeignwages.Goodswillalwaysbeproducedwhereitischeapesttomakethem.Forexample,itwillbecheapertoproducegoodsiinHomeifwaLi<w*a*Li,orbyrearrangingifa*Li/aLi>w/w*.ComparativeAdvantage

withManyGoods28ComparativeAdvantage

withManyGoodsTable2-4:HomeandForeignUnitLaborRequirements29Whichcountryproduceswhichgoods?Acountryhasacostadvantageinanygoodforwhichitsrelativeproductivityishigherthanitsrelativewage.If,forexample,w/w*=3,Homewillproduceapples,bananas,andcaviar,whileForeignwillproduceonlydatesandenchiladas.Bothcountrieswillgainfromthisspecialization.ComparativeAdvantage

withManyGoods30DeterminingtheRelativeWageintheMultigoodModelTodeterminerelativewagesinamultigoodeconomywemustlookbehindtherelativedemandforgoods(i.e.,therelativederiveddemand).TherelativedemandforHomelabordependsnegativelyontheratioofHometoForeignwages.ComparativeAdvantage

withManyGoods31310Apples8Bananas4Caviar2Dates0.75EnchiladasRDComparativeAdvantage

withManyGoodsFigure2-5:DeterminationofRelativeWagesRSRelativewageRate,w/w*Relativequantityoflabor,L/L*32AddingTransportCosts

andNontradedGoodsTherearethreemainreasonswhyspecializationintherealinternationaleconomyisnotextreme:Theexistenceofmorethanonefactorofproduction.Countriessometimesprotectindustriesfromforeigncompetition.Itiscostlyt