Question 2.3 Armenia is a small country (changes in endowments do not result in price changes for factor inputs or final goods prices). Suppose that it produces two goods, manufactures and food. It produces these goods in a Heckscher-Ohlin world using high-skilled labor (H) and low skilled labor (L). Manufactures make relatively intensive use of H and food is relatively L-intensive. About 3 million Armenians are high-skilled, while 1 million people are low-skilled. KS Advanced International Trade Karin Mayr-Dorn 2.3A Draw the situation described above in a graph with the factor quantities - i.e., high-skilled labour (H) and low-skilled labour (L) - on the axes. Draw the endowment vector (H, L) and the factor requirement vectors (amh, ami) and (afh, apl) for the two goods ('cone of diversification'). 2.3B How can you determine the production levels of manufactures and food in full employment equilibrium in the graph? After the fall of the Soviet Union and the declaration of Armenian independence, the socio-economic situation in Armenia deteriorates rapidly. As a consequence, people are voting with their feet. Estimates show that two million people have emigrated from Armenia since independence. It is the best (high-skilled) people who are going. 2.3C Show the effects of the Armenian emigration in the graph you have drawn in 2.3A. 2.3D What are the effects on the production of manufactures and food? What do we call this effect in theory? The table below shows the contribution to Armenian GDP per sector. Gross domestic product by sector (% of total at current prices) 1990 Agriculture 16 Industry 30 Construction 18 Transport & Communication 7 Services 47 Source: Economist Intelligence Unit 1991 24 35 11 5 37 1992 29 30 6 7 34 1993 49 22 4 6 24 1994 44 29 7 4 23 2.3E Does the table provide support for the effect you have identified in 2.8D? Explain your answer. Question 2.3 Armenia is a small country (changes in endowments do not result in price changes for factor inputs or final goods prices). Suppose that it produces two goods, manufactures and food. It produces these goods in a Heckscher-Ohlin world using high-skilled labor (H) and low skilled labor (L). Manufactures make relatively intensive use of H and food is relatively L-intensive. About 3 million Armenians are high-skilled, while 1 million people are low-skilled. KS Advanced International Trade Karin Mayr-Dorn 2.3A Draw the situation described above in a graph with the factor quantities - i.e., high-skilled labour (H) and low-skilled labour (L) - on the axes. Draw the endowment vector (H, L) and the factor requirement vectors (amh, ami) and (afh, apl) for the two goods ('cone of diversification'). 2.3B How can you determine the production levels of manufactures and food in full employment equilibrium in the graph? After the fall of the Soviet Union and the declaration of Armenian independence, the socio-economic situation in Armenia deteriorates rapidly. As a consequence, people are voting with their feet. Estimates show that two million people have emigrated from Armenia since independence. It is the best (high-skilled) people who are going. 2.3C Show the effects of the Armenian emigration in the graph you have drawn in 2.3A. 2.3D What are the effects on the production of manufactures and food? What do we call this effect in theory? The table below shows the contribution to Armenian GDP per sector. Gross domestic product by sector (% of total at current prices) 1990 Agriculture 16 Industry 30 Construction 18 Transport & Communication 7 Services 47 Source: Economist Intelligence Unit 1991 24 35 11 5 37 1992 29 30 6 7 34 1993 49 22 4 6 24 1994 44 29 7 4 23 2.3E Does the table provide support for the effect you have identified in 2.8D? Explain your
