CHAPTER 6
GROWTH AND
TRADE
Balanced vs. biased growth
Balanced growth, growth would result in
the same proportionate increase in
production of all products if product prices
remain the same.
 Balanced growth could be the result of
increases in the country’s endowments of
all factors by the same proportion. Or it
could be the result of technology
improvements of a similar magnitude in
both industries.

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Balanced vs. biased growth
Biased growth, growth can be biased
toward producing more of one of the
products. In this case the shift in the
production-possibility curve will be skewed
toward the faster-growing product.
 Biased growth arises when the country’s
endowments of different factors grow at
different rates, or when improvements in
production technologies are larger in one
of the industries than in the other.

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Balanced vs. biased growth
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Growth in only one factor
Rybczynski theorem, in a two-good
world, and assuming that product prices
are constant, growth in one factor leads to
an absolute expansion in the product that
uses that factor intensively and an
absolute contraction in output of the
product that uses the other factor
intensively.
British economist T. M. Rybczynski
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Growth in only one factor
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Growth in only one factor

The Rybczynski theorem suggests that
development of a new natural resource,
such as oil or gas, may retard
development of other lines of production,
such as manufactures (e.g. the Dutch
Disease). Conversely, rapid accumulation
of new capital and worker skills can cause
a decline in domestic production of natural
resource products and make the country
more reliant on imported materials.
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Changes in the country’s willingness to trade

1.
2.
As production and consumption change
with growth, a country’s willingness or
interest in engaging in international trade
can change. That is, even if the relative
price between two products stays
constant, the country could either:
Increase its willingness to trade (it could
want to export and import more) or
Decrease its willingness to trade (it could
want to export and import less).
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Effects on the country’s terms of trade

Changes in a country’s willingness to trade
can alter the country’s terms of trade if
the country is large enough for its trade to
have an impact on the international
equilibrium. In turn, any change in the
country’s terms of trade affects the extent
to which the country benefits from its
growth.
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Effects on the country’s terms of trade
Small country, one whose trade does not
affect the international price ratio.
 Large country, one whose trade can
have an impact on the relative
international price ratio.

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Effects on the country’s terms of trade

1.


If a country is large, a change in its willingness
to trade has two cases:
The growth reduces the country’s willingness to
trade at any given price, the country gets two
benefits from growth:
The production benefit from growth as the ppc
shifts out.
The benefit from improved terms of trade as it
receives a better price for its exports relative to
the price that it has to pay for its imports.
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Effects on the country’s terms of trade
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Effects on the country’s terms of trade
2.


Growth increases the country’s willingness to
trade. This change in the equilibrium
international price ratio is a deterioration in the
country’s terms of trade. In this case the overall
effect on the country’s well-being is not clear.
Growth brings a production benefit, but the
country is hurt by the subsequent decline in its
terms of trade.
If the terms of trade do not decline by too much,
then the country gains overall from growth, but
not by as much as it would if the terms of trade
did not change.
If the adverse movement is large, a surprising
consequence is possible.
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Immiserizing growth
Growth that expands the country's
willingness to trade causes such a large
decline in the country's terms of trade that
the well-being of the country declines, the
situation is referred to as immiserizing
growth, first pointed out by Jagdish N.
Bhagwati (1958).
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Immiserizing growth
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Immiserizing growth
Three conditions seem crucial for
immiserizing growth to occur:
 The growth is strongly biased toward
producing more of the exportable
product.
 Foreign demand for the country’s
exports is price inelastic.
 The country is heavily engaged in
international trade.
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Immiserizing growth

Countries that export a diversified
selection of export products do not seem
to be at much risk of experiencing
immiserizing growth. A developing country
that relies on one or a few primary
products (agricultural or mineral products)
is more at risk.
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Product cycle hypothesis
A country that produces technically superior
goods will sell this first to its domestic
market, then to other technically
advanced countries. In time, developing
countries will import and later
manufacture these goods, by which the
original innovator will have produced new
products.
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Product Life Cycle
Sales and
Profits ($)
Sales
Profits
Product
Development
Introduction
Growth
Maturity
Time
Decline
Losses/
Investments ($)
Sales and Profits Over the Product’s Lifetime
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Introduction Growth
Maturity
Decline
Low
Fast
growth
Slow
growth
Decline
Profits Negative
Rapid
rise
Falling
margins
Declining
Cash
flow
Moderate High
Sales
Negative
Moderate
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Assignment




格式：使用A4纸，正文部分用小四号字体，以1.5倍行间距格式打
印。答题不超过3页（不包括图表），可在3页之外附带图表，图表
必须直接与答案相关。
题目：
选择一个国家，写出该国按照H.S.(SITC)编码分类－两位（或三位）
数分类水平的全部进出口数据。哪些产品是该国的主要出口产品？
哪些产品是该国的主要进口产品？（该部分的讨论应当简明扼要，
作为其他部分的引言）。
各种贸易理论在何种程度上解释了该国贸易的产品构成模式（或解
释了该模式的某些方面）？在答题中，你可以考察该国的商品出口
构成、商品进口构成、商品净出口（出口减进口）金额，以及各种
商品净出口额占该商品总贸易量（出口加进口）的百分比。此外，
还应当说明和检验各种产品的产业内贸易与理论相符合的程度。
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Assignment


对于可得到数据的最近年份，列举出对于该国出
口商品的最大的购买国，以及该国的五个最大进
口来源国。简要讨论这种贸易伙伴国模式的可能
的原因。
要求：小组作业，两周时间完成。每小组必须且
只能选择一个国家，并确保可得到该国的资料。
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数据的查找
www.wto.org→ Resources → trade
statistics →Links (national statistical
offices)
 (e.g. USA) www.census.gov →business &
industry (foreign trade) →statistics
→country/product trade data →top trading
partners, trade in goods by country

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数据的查找

www.intracen.org →countries →select a
country →trade statistics →imports,
exports
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Questions

“According to the Rybczynski theorem, an
increase in the country’s labor force will
result in an increase in the quantity
produced of the labor-intensive good, with
no change in the quantity produced of the
other good.” Do you agree or disagree?
Why?
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Questions

A number of Latin American countries
export coffee and import other goods. A
long-term drought now reduces coffee
production in the countries of this region.
Assume that they remain exporters of
coffee. Explain why the long-term drought
in the region might lead to an increase in
the region’s well-being or welfare. What
would make this gain in well-being more
likely?
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Questions

A free-trade equilibrium exists in which
the United States exports machinery and
imports clothing from the rest of the world.
The goods are produced with two factors:
capital and labor. The trade pattern is the
one predicted by the H-O theory. An
increase now occurs in the U.S.
endowment of capital, its abundant factor.
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Questions
1.
2.
3.
4.
5.
What is the effect on the shape and position of
the U.S. production-possibility curve?
What is the effect on the actual production
quantities in the United States if the product
price ratio is unchanged? Explain.
What is the effect on the U.S. willingness to
trade?
Assuming that the U.S. growth does affect the
international equilibrium price ratio, what is the
direction of the change in this price ratio?
Is it possible that U.S. national well-being
declines as a result of the endowment growth
and resulting change in the international price
ratio? Explain.
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Questions

Which of the following can lead to a
reversal of the country’s trade pattern
(that is, a shift in which a previously
exported good becomes an imported good,
or a previously imported good becomes an
export good)? Consider each separately.
Explain each.
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Questions
a.
b.
c.
Growth in the country’s total supply
(endowment) of the factor that is initially
scarce in the country.
International diffusion of technology.
Shifting tastes of the country’s
consumers.
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