Problem Set 3 Econ 355 - Introduction to International Trade 2022-2023 Winter Term 1 Due 11:59pm Friday October 28th 2022 ()nline submission on Canvas only 1 True / False For each of the following statements say,r whether it is true or false and explain why using a couple of sentences. graphs or equations. (a) In the HeckscherOhlin model with labor and capital. a country cannot be both labor and capital abundant. (b) According to the HeckscherOhlin model's long-run view of migration. sending Mexican work ers from the U 3 back to Mexico would not increase the wages of American workers, as long i s goods prices are unaffected. [c] Consider a specic factor model with labor as a mobile factor. Holding goods prices xed, emigration of some workers benefits workers who remain in the country. 2 HeckscherOhlin model with Migratioru Consider the HeckscherUhlin model of trade. Two countries. Argentina and Brazil. produce two goods, Cars (C) and Beer (B). using two factors. Skilled workers {.9} and Unskilled workers (U). Skilled workers are those who obtained at least a college degree. There are overall 120 million workers in Brazil, 15% of whom have a college degree. In Argentina there are 25 million workers, 20% of whom have a college degree. Furthermore suppose that in autark}.r in Argentina Car producers use 2 Skilled worker and 3 U nskilled 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) 'Which countryr is Skilledlabor abundant and which is Unskilledlabor abundant? (ii) Which sector is Skilledlabor intensive and which is U nskilledlabor intensive? For the reminder of this question you do not need to provide specic numbers, a qualitative answer is sufcient. (1)) Trade equilibrium (i) Show in a graph similar to Figure 43a 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,r label the axes. PPF. production point. consumption point. and relevant indifference curves. (ii) Which country exports Cars and which country exports Beer? (iii) What happens to the relative wage of Skilled workers R; [i.e., the skill premium} in each country after they start trading? [iv] W'lmt 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] W'hich 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 changes 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? 1 [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 calculate relative factor abundance and relative factor intensities for two countries and two sectors (use the definitions of factor abundance and factor intensity as given in the Assumptions of the HeckcherUhlin model). lo to the website of 'World InputOutput Database at vamuiodmrg and download the November 2015 release of SocioEconomic Accounts (direct link: https:{'fda'taverse-nlfapi/access/datafile/199095}. Vite will focus on data for two countries Portugal (code PET) and Italy (code ITA}.. for the year 2013. (a) Find the number of persons engaged (EMR 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]. I-Vhich country is labor abundant and which country is capital abundant? (13} Find the amount of labor (Eh-1P) and capital (K) used by Manufacture of fmd pmducts, beuemges and tobacco products (code CID(312) and M'auufacture of computer, electronic and opticat products (code C26} in each of the two countries. I-Vhich sector is labor intensive and which sector is capital intensive? Is the ranking of these two sectors the same in both countries