Problem Set 3 Econ 355 - Introduction to International Thule 2022-2023 Winter Term 1 Due 11:59pm iday October 28th 2022 Online submimion on Canvas only 1 'D-ue/ False For each of the following statements say whether it is true or false and explain why using a couple of sentences, graphs or equations. (a) In the Heekscher-Ohlin model with labor and capital, a country cannot be both labor and capital abundant (b) Acoording to the Heckscher-Ohlin model's long-run view of migration, sending Mexican work- ers from the US back to Mexico would not increase the wages of American workers, as long as goods prices are unaffected. (e) Consider a specic factor model with labor as a mobile factor. Holding goods prices xed. emigration of seine workers benets workers who remain in the country. 2 Heckscher-Ohlin model with Migration Consider the HeckscherOhlin model of trade Two countries. Argentina and Brazil. produce two goods. Cars (C) and Beer (B), using two factors. Skilled workers (S) and Unskilled workers (U) Skilled workers are those who obtained at least a college degree. There are overall 120 lnillion workers in Brazil, 15% of whom have a college degree. In Argentina there are 25 million workers. 20% of whom have a college degree, hirthmnore suppose that in autarky in Argentina Car producers use 2 Skilled worker and 3 Unskilled workers to produce one car, while Beer producers use 15 Skilled workers and 7 Unskilled workers to produce one barrel of Beer, Please provide explanations for all your answers below. (a) Factor abundance and factor intensity (i) Vl'hich country is Skilled-labor abundant and which is Unskilled-labor abundant"! (ii) Which sector is Skilled-labor intensive and which is Unskilled-labor intensive? For the reminder of this question you do not need to provide specic numbers, a qualitative answer is sulcient. (b) Trade equilibrium (i) Show in a graph similar to Figure 4-3-a from the textbook what the trade equilibrium looks like in each country Put Cars on the horizontal axis and Beer on the vertical axis. Clearly label the axes PPFI production point, consumption point. and relevant indifference curves. (ii) Which country exports Cars and which country exports Beer"! , _ . , . , . w. (In) What happens to the relative wage of Skilled workers W; ,' (Let the skill prerniiun) in each country after they start trading? 'V (iv) What happens to the real wage in terms of Cars and in terms of Beer of Skilled workers and of Unskilled workers in each country? (v) Which group of workers would have an incentive to oppose opening to trade in Brazil and in Argentina? (vi) Assuming that Skilled workers always get a higher wage than Unskilled workers, what happens to wage inequality in Brazil and in Argentina after they open to trade? (c) Migration Suppose that some Skilled Brazilian workers emigrate to Argentina. Assume that countries keep trading goods and that the migration has no effect on the prices of Cars or Beer. (i) Show how the PPF change; in each country after the migration. (ii) What happens to the production of Cars and Beer in each country? (iii) What happens to the real wage of Skilled and Unskilled workers in each of the countries? (iv) Does any group of workers in either country have a reason to oppose the migration of Skilled workers form Brazil to Argentina in this example? 3 Data Exercise The goal of this exercise is to mlculate relative factor abundance and relative factor intensities for two countries and two sectors (use the definitions of factor ahlmdance and factor intensity as given in the Assumptions of the Hed(cher-Ohlin model). Go to the website of World Input-Output Database at m.wiod.org and download the November 2016 release of SocioEconomic Accounts (direct link: https:l/dataverse.nl/api/access/datafea/199095). We will focus on data for two countries, Portugal (code PRT) and Italy (code lTA), for the year 2013, (3) Find the number of persons engaged (EMF, a measure of employment) and the capital stock (K, a measure of capital) used by the entire economy in Portugal and in Italy. (You will need to sum employment and capital stock in all sectors to nd the values for the entire economy). Which country is labor abundant and which country is capital abundant? (b) Find the amount of labor (EMP) and capital (K) used by Manufacture o] [and products, beverages and tobacco products (code Clo-C12) and Manufacture of computer, electronic and optical products (code C26) in each of the two countries. Which sector is labor intensive and which sector is capital intensive? [s the ranking of these two sectors the some in both countries