ECON231 Study Guide - Final Guide: Voluntary Export Restraints, Multinational Corporation, Canadian Dollar
8 Aug 2016
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Document Summary
The instruments and political economy of trade policy. Fx rate determination: purchasing power parity and monetary approach. Empirical relationship between the size of a country"s economy and the volume of both its imports and its exports. We use the gravity model to look for anomalies of instances where trade with countries are significantly less or more than what is predicted by the model. Typically, 1% increase in the distance between two countries is associated with a fall of 0. 7-1% in trade between those countries. Trade agreements skew gravity model predictions as they remove barriers to trade. Trends in world trade from previous generation has been: world is smaller. Technology in transportation and communications has abolished distance. Gravity model continue to show a strong negative relationship between distance and international trade. The effect has grown weaker over time. Political forces can outweigh the effects of technology; notice world war one and two, protectionism, etc: what we trade.
