Analysis of Economic Conditions in the United States and Ecuador

Data Source

a. Introduction

Assume that you are an economic consultant hired by an international organization/government to provide your expert advice on economic conditions pertaining to the United States and Ecuador. 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:

1. You are required to analyse any relevant issue using your technical This involves utilizing your knowledge in economic models as well as inspecting and interpreting data.
2. You need to communicate your results in an effective

The purpose of this exercise is to assess your aptitudes in each domain. You will evaluate the economic conditions in these countries (the United States and Ecuador) 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.

b. Data Source

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 2003 to 2018.

You need to obtain the country-level data for the United States and Ecuador on:

1. Imports of goods and services (in current US$)
2. Exports of goods and services (in current US$)
3. GDP (in current US$)
4. GDP per capita (in current US$)
5. GINI Index (World Bank estimate) from the World Bank's World Development Indicators

c. Required Task

Your tasks involve two dimensions. First, you need to analyse the data (see Steps 1, 2 and 3 in the next section). Second, you also 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:

• 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
• Establish how being integrated with the rest of the world affected inequality in these two countries by looking at the correlation between their openness and GINI
• State and explain whether your data findings are in line with theory (Assume that the United States is a skilled-labour abundant country, whereas Ecuador is an unskilled-  labour abundant country).
• Continue your technical analysis from your first report and  state what  would  have happened to these countries once they are allowed to trade with each other based on our hypothetical scenario of Ricardian model.

d. Required steps to complete each task

Data Analysis

For data analysis, you need to follow Steps 1, 2 and 3 given below.

Step 1. Using the data you obtained for the United Stated and Ecuador, calculate the correlation coefficient (using CORREL command in excel) between openness and GDP per capita (which is a proxy for economic development) for each nation. Report and interpret this relationship and state for which country this relationship is stronger. When reporting, you can round off each correlation value to 2 or more decimal places.

Step 2. Using the data you obtained for the United Stated and Ecuador, calculate the correlation coefficient (using CORREL command in excel) between Openness and the GINI Index (which is a proxy for the ratio of skilled to unskilled wages for each nation in empirical studies).1 Report and interpret this relationship and state for which country this relationship is stronger. When reporting, you can round off each correlation value to 2 or more decimal places.

Step 3. Assume that the United States is a skilled-labour abundant country, whereas Ecuador is an unskilled-labour abundant. First define, Stolper-Samuelson theorem and then check whether your data findings from Step 2 are in line with the Stolper-Samuelson theorem. Explain your answer.

Technical  Analysis

For technical analysis, you need to follow Step 4. This is the continuation of technical question from Assignment 1. In the previous assignment, you analysed the closed economy when there is no trade between them. Now, you will be asked to analyse what happens when these nations trade with each other, i.e., open economy.

Step 4. In order to conjecture the circumstances in these two countries under free trade, consider the following hypothetical scenario based on Ricardian model. Assume throughout that those two countries (the United States and Ecuador) are the only two countries in the world, at least for purposes of trade. There are two goods: computers and textiles. Consumers in both countries always spend half of their income on computers and half of their income on textiles. The only factor of production is labour. Each U.S. worker can produce 4 computers or 2 textiles per unit of time. Each Ecuadorian worker can produce 2 computers or 3 textiles per unit of time. There are 100 workers in the U.S. and 80 workers in Ecuador.

1. Derive the world relative demand curve relating the relative demand for computers to the relative price of Do this algebraically, and then show what the curve looks like in a diagram (put the relative price of computers on the vertical axis and the relative quantity of computers demanded on the horizontal axis).
2. Derive the world relative supply curve of computers (put the relative price of computers on the vertical axis and the relative quantity of computers supplied on the horizontal axis).
3. Put in the same figure the world relative demand curve for computers that you found in part (a) and the world relative supply curve of computers that you found in part (b). Determine the equilibrium relative price of computers and the equilibrium relative quantity of computers under free
4. Under free trade, which country produces which good(s)? How many units?
5. Who gains from trade? Who loses from trade? State workers’ stance towards free trade in each country, i.e., do they support or oppose free trade?