Jan 27
B: 20 Tech, 100 Resources
C: 5 Tech, 5 Resources Time 2:A: 110 Tech, 20 Resources
B: 20 Tech, 100 Resources
C: 30 Tech, 5 ResourcesIn this example country A is the developed country, country B is the commodity producing country and country C is the developing country. At Time 1, both country A and country B benefit from trade, while country C doesn't need to trade since it doesn't have any comparative advantage relative to countries A and B. At time 2, technological progress has enabled more Tech goods to be produced by countries A and technological catch up has allowed country C to drastically increase their Tech production, but resource constraints have prevented any increase in Resource production. In this scenario, Country A is damaged by country C's arrival on the global trade scene, even though this damage is mitigated by its benefits to countries B and C. It is important to note that short of measures preventing technological knowledge from getting to country C in the first place, there is no economic policy that protects country A from this globalization driven negative terms of trade shift.
A Simple Model of Developing Countries in a Resource Constrained World
One of the constant themes of globalization is that many people feel like the developing countries are hurting them. While in most cases the benefits to consumers outweighs the opportunity cost of the people who have just lost their jobs, there are some cases where the emergence of the developing country can hurt the developed country overall. Take the following three country model, each country producing two goods (Tech and Resources), at times one and time two:Time 1:A: 100 Tech, 20 ResourcesB: 20 Tech, 100 Resources
C: 5 Tech, 5 Resources Time 2:A: 110 Tech, 20 Resources
B: 20 Tech, 100 Resources
C: 30 Tech, 5 ResourcesIn this example country A is the developed country, country B is the commodity producing country and country C is the developing country. At Time 1, both country A and country B benefit from trade, while country C doesn't need to trade since it doesn't have any comparative advantage relative to countries A and B. At time 2, technological progress has enabled more Tech goods to be produced by countries A and technological catch up has allowed country C to drastically increase their Tech production, but resource constraints have prevented any increase in Resource production. In this scenario, Country A is damaged by country C's arrival on the global trade scene, even though this damage is mitigated by its benefits to countries B and C. It is important to note that short of measures preventing technological knowledge from getting to country C in the first place, there is no economic policy that protects country A from this globalization driven negative terms of trade shift.
