Theory of West-East-Trade - Universität Regensburg

Prof. Dr. Lutz Arnold, Michael Heyna, M.Sc.

Schwerpunktmodulgruppe (M.Sc. VWL): Außenwirtschaft (International Economics)
Pflichtmodulgruppe (M.Sc. IVWL (MOE)): Internationale VWL
Credits: 6 ECTS

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This lecture is in English.

Inhalt:

The traditional trade theory predicts factor price equalization (given incomplete specialization). Intensified trade with the CEE countries as well as with the far eastern emerging economies calls for a theory of trade that is based on wage differentials. This task is accomplished by the "North-South trade theory" invented by Paul Krugman and developed further by Gene Grossman and Elhanan Helpman, among others, which nowadays is more appropriately called "West-East trade theory".

In this lecture, we first review the traditional trade theory and show how factor price equalization emerges as a corollary of the more general property that the world economy reproduces the equilibrium of a hypothetical integrated economy. We then turn to the intra-industry trade theory also pioneered by Krugman, which maintains reproduction and therefore factor price equalization, however. Using the building blocks of this theory, we analyze Krugman's basic West-East model. In this model, the technologically more advanced economy ("the West") is able to pay higher wages. The trade pattern is dictated by absolute cost advantage: there is an incentive to move production to the low-cost country ("the East"), but this may not be feasible or profitable technologically.

We extend the model in two directions. For one thing, we introduce unemployment and show how catching-up in the East leads either to a decrease in the wage differential or to unemployment in the West. For another, we consider a dynamic version of the model, in which cost advantage and the trade pattern are ultimately determined by the pace of innovation in the West and imitation in the East. This dynamic model is the starting point of Grossman and Helpman's endogenous growth West-East model.

Aktuelles Kursprüfungsergebnis (SS 22):

Teilnehmer: 18, Durchfallquote: 11%, Durchschnittsnote (ohne "Durchstreicher"): 2,59.

Note:	1,0	1,3	1,7	2,0	2,3	2,7	3,0	3,3	3,7	4,0	4,3	4,7	5,0
Punkte:	100 -90	89,5 -85	84,5 -80	79,5 -75	74,5 -70	69,5 -65	64,5 -60	59,5 -55	54,5 -50	49,5 -45	44,5 -40	39,5 -35	34,5 -0
Anzahl	1	1	3	1	5	1	2	0	1	1	1	0	1

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