1 Australia's mining boom III

We continue to analyze Australia's mining boom by using the model from Exercise 2 from

Assignment 6.

What happens to the (real) wage paid to low-skilled workers when the boom occurs? And

what happens to the (real) wage paid to mining engineers and viticulturists?

2 Labor, capital, and energy intensities of industries

In the context of the Heckscher-Ohlin model with the two production factors capital and

labor, we have discussed that industries differ in their labor and capital-intensities.

(a) Define labor and capital-intensity of an industry.

(b) Explain what we mean when we assume that there are no factor intensity reversals.

Illustrate the case of a factor intensity reversal using a suitable diagram.

(c) Human activity, particularly the production and consumption of energy-intensive goods

and the associated emissions of carbon dioxide into the atmosphere, is a major factor

driving global warming. Therefore, the European Union will introduce a carbon border

adjustment mechanism (CBAM) in the near future.

1

Imagine a variant of the Heckscher-

Ohlin model with two production factors labor and energy used in two industries. Define

labor and energy intensity of an industry in such a model. Can you think of examples

of an energy-intensive industry versus a labor-intensive industry?

3 . The effect of capital accumulation in China on its trade

pattern

We have seen in the lecture that while China was scarce in capital in 2000, since 2010, China

is abundant in capital. The reason for this is that the Chinese economy has accumulated

capital, i.e., it invested in its capital stock. We are interested in illustrating this capital

accumulation and learn its effects on China's trade pattern.

For the sake of this exercise, we think of China as a country endowed with two factors of

production, labor and capital, producing two goods, labor-intensive toys and capital-intensive

smartphones.

(a) Illustrate the PPF of China in the year 2000, when it was a capital-scarce country, and

today, when it is a capital-abundant country. We assume that the amount of labor has

not changed throughout this period.

(b) What do you predict has happened to China's comparative advantage? Which good does

China export in 2000, and today, according to your model? Explain (no graph needed).

(c) Is your prediction borne out by the data? Present evidence providing appropriate refer-

ences. Why, or why not?