The Theory of absolute Advantage G A Figure 4.1 B G 10 20 Rice McGraw-HillIrwoin @2003 The McGraw-Hill Companies, Inc, All Rights reserved
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 4-1 The Theory of Absolute Advantage Rice Cocoa Figure 4.1 G’ 0 5 10 15 20 5 10 15 20 A B K G K’
The Theory of Comparative advantage Figure 4.2 LO K -10615 20 3.75 75 Rice McGraw-HillIrwoin @2003 The McGraw-Hill Companies, Inc, All Rights Reserved
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 4-2 The Theory of Comparative Advantage Figure 4.2 3.75 7.5 2.5 0 5 10 15 20 5 10 15 20 Cocoa Rice G C A K K’ B G’
Ghana's PPF under Diminishing Returns Figure 4.3 G 0 R Ice McGraw-HillIrwoin @2003 The McGraw-Hill Companies, Inc, All Rights Reserved
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 4-3 Ghana’s PPF under Diminishing Returns Cocoa Rice G’ G 0 Figure 4.3
The Influence of free Trade on the pPF PPF2 PPF1 Fiqure 4.4 0 R Ice McGraw-HillIrwoin @2003 The McGraw-Hill Companies, Inc, All Rights reserved
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 4-4 The Influence of Free Trade on the PPF Figure 4.4 Cocoa Rice G’ PPF2 0 PPF1
A Link Between Trade and Growth Sachs and Warner: 1970 to 1990 study Open economy developing countries grew 4.49%/year Closed economy developing countries grew 0.69%/year Open economy developed countries grew 2. 29%/year Closed economy developed countries grew 0.74%/year Frankel and Romer On average, a one percentage point increase in the ratio of a country's trade to its GDP increases income/person by at least 0.57. For every 10% increase in the importance of international trade in an economy, average income levels will rise by at least 57. McGraw-HillIrwoin @2003 The McGraw-Hill Companies, Inc, All Rights Reserved
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 4-5 A Link Between Trade and Growth Sachs and Warner: 1970 to 1990 study Open economy developing countries grew 4.49%/year. Closed economy developing countries grew 0.69%/year. Open economy developed countries grew 2.29%/year. Closed economy developed countries grew 0.74%/year. Frankel and Romer: On average, a one percentage point increase in the ratio of a country’s trade to its GDP increases income/person by at least 0.5%. For every 10% increase in the importance of international trade in an economy, average income levels will rise by at least 5%