ECON1086 International Trade
Assume that you are an economic consultant hired by an international organization/government to provide your expert advice on conditions pertaining to international trade in Argentina and El Salvador. Your analysis will consist of two separate reports (one for Assignment 1 and the other for Assignment 2). As an expert, your job is two-fold:
- You are required to analyse any relevant issue using your technical skills. This involves utilizing your knowledge in international trade models as well as inspecting and interpreting data.
- You need to communicate your results in an effective way.
The purpose of this exercise is to assess your aptitudes in each domain. You will evaluate the trading conditions in these countries (Argentina and El Salvador) based on the scenarios detailed in each question in this Assignment. Your analysis will form the basis for a short report to the international organization/government body--- summarising your analysis and the associated rationale.
For your data analysis, you first need to obtain data from the World Bank (see the link below) and follow the steps described below. Notice that World Bank regularly updates its database; therefore it is crucial to obtain all data as soon as possible. The data range is from 1998 to 2014.
You need to obtain the country-level data for Argentina and El Salvador on:
- Imports of goods and services (in current US$)
- Exports of goods and services (in current US$)
- GDP (in current US$)
- GDP per capita (in current US$)
- GINI Index (World Bank estimate) from the World Bank's WorldDevelopment Indicators:
Your tasks involve two dimensions. Firstly, you need to analyse the data (see Steps 1, 2 and 3 in the next section). Secondly, you need to perform a technical analysis by considering a hypothetical trading environment based on Ricardian model (see Step 4 in the next section).
Accordingly, you are required to:
Provide information about how integrated these two countries (Argentina and El Salvador) are with the rest of the world. To do so, you need to look at their trade flows relative to their GDP and calculate openness.
Provide a visual representation of your findings by plotting a graph (use line graph) that shows the change in openness for these countries over the period between 1998 and 2014 (including all years, i.e., 1998, 1999, …, 2014).
Establish whether being integrated with the rest of the world helped these two countries by looking at the correlation between their openness and GDP per capita.
Conjecture what would have happened if these countries were not open to trade with the rest of the world by evaluating a hypothetical scenario based on a simple Ricardian model.
Required Steps To Complete Each Task
For data analysis, you need to follow Steps 1, 2 and 3 given below.
Step 1. Using trade flows in your data, calculate openness as a percentage for Argentina and El Salvador and present them for each year for both countries as a table. You need to explain your method, namely, how you calculated openness using trade flows (write down the formula). In addition, you need to state what other alternative ways you could have adopted to calculate openness other than using trade flows.
Step 2. Using the calculations you did for openness in Step 1, plot openness (as a percentage) against time (1998- 2014) for both countries (Argentina and El Salvador) in a single graph (as a chart type: you are required to use line graph). Put openness (as a percentage) on the vertical axis and time on the horizontal axis. Explain and compare briefly how openness changes for these countries over time.
Step 3. Explain in up to 200 words the relationship between openness and economic development by calculating the correlation coefficient between GDP per capita
Step 4. In order to conjecture the circumstances in these two countries under autarky (when there is no trade), consider the following hypothetical scenario based on Ricardian model. Assume throughout that those two countries (Argentina and El Salvador) are the only two countries in the world, at least for purposes of trade. There are two goods: Hammers and Widgets. Consumers in both countries always spend half of their income on Hammers and half of their income on Widgets. The only factor of production is labour. Each Argentinian worker can produce 4 Hammers or 2 Widget per unit of time. Each El Salvadoran worker can produce 2 Hammers or 2 Widgets per unit of time. There are 50 workers in Argentina and 75 workers in El Salvador. You need to provide conditions in each country by stating:
a) Which country has an absolute advantage in Hammer? In Widget?
b) Which country has a comparative advantage in Hammer? In Widget?
c) Draw the production possibility frontier for each country and indicate slope (put Hammer on the vertical axis and Widget on the horizontal axis).
d) Find the autarky relative price of Widgets in both countries (i.e., the price of Widgets divided by the price of Hammers).
e) What is the optimal consumption and production for each country under autarky?
Presentation Of Results
You need to provide a brief in order to effectively communicate your findings. In your brief, you must have the following ingredients:
Micro-credential: Include the URL link that verifies that you successfully completed the “Fact Check” micro-credential.
Headline: One possible example is: “A Simple Analysis of Openness for Argentina and El Salvador: Part I”
Data Analysis: In this section, you need to present your data analysis based on your findings in Steps 1, 2 and 3.
Technical Analysis: In this section, you need to communicate your technical results based on your findings in Step 4.