International Trade Assignment 2 PDF

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International Trade Assignment 2 Name: Adam Nguyen Student No. s3547455 1. Using data from two countries, plot openness versus Industrial Pay Inequality (from UTIPUNIDO) for each nation. Use two graphs, one for each country. IT’S UP TO YOU TO FIGURE OUT HOW TO DO THIS. (8 marks) 50 0 45 0 40 0 Openn...

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International Trade Assignment 2 Name: Adam Nguyen Student No. s3547455 1. Using data from two countries, plot openness versus Industrial Pay Inequality (from UTIPUNIDO) for each nation. Use two graphs, one for each country. IT’S UP TO YOU TO FIGURE OUT HOW TO DO THIS. (8 marks)

50

0.02

45

0.02

40

0.01

Openness to Trade %

35

0.01

30 0.01 25 0.01 20 0.01

15 10

0

5

0

0

0

8 5 86 8 7 88 8 9 90 9 1 92 9 3 94 9 5 96 9 7 98 9 9 00 0 1 02 0 3 04 0 5 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20

Year Australia Trade Openness

Industrial Pay Inequality

Industrial Pay Inequality

Australia's Openness to Trade Vs Industrial Pay Inequality

Philippines Openness to Trade Vs Industry Pay Inequality 120

0.08 0.07

100

0.05

60

0.04 0.03

40

0.02 20

0.01

0

Industry Pay Inequality

Openness to Trade %

0.06 80

19

85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05

0

Year Philippines Trade Openness

Industry Pay Inequality

2. Using data from the two countries, calculate the correlation (using excel) between openness and Industrial Pay Inequality (from UTIP-UNIDO) for each nation, respectively. Report and interpret this relationship in up to 100 words. [Hint: The Theil Index is used as a proxy for the ratio of skilled to unskilled wages in empirical studies]. DO NOT ATTACH YOUR DATA TO THE ASSIGNMENT. (7 marks)

The above formula is used to calculate the correlation coefficient between the Openness and the Industrial Pay Inequality for both countries. This will aid in the understanding of interpreting the relationship between a countries Openness and the Industrial Pay Inequality between Australia and the Philippines. It can be said that the higher the Theil index is, the more open a country is to trade. This means that the income inequality will increase as a result of increased trade. With these points noted, it can be concluded that: For Australia a correlation coefficient of 0.653835 shows a moderate – strong positive relationship which results in the country becoming more open to trade with a moderate rise in industrial pay inequality.

For the Philippines a correlation coefficient of -0.512 shows a moderate negative relationship between openness to trade and industrial pay inequality. In addition the Philippines have seen signs of decreasing industrial pay inequality. The negative moderate correlation means that the industrial pay inequality has decreased at a medium pace with the increased openness to trade.

3. Explain carefully in up to 400 words whether your data agrees or disagrees with the StolperSamuelson Theorem. (Remember to accurately define the theorem and discuss how it applies to your countries). (10 marks)

Referring to figure 6.II, this diagram shows how the Stolper Samuelson Theorem affects real wages through factor substitutability. The theorem explains how an increase in the price of a good will increase the price of abundantly used factors in production, while decreasing the price of the other factor. By dissecting the information from the above graph, it can be said that due to free trade, the decrease in relative price of apparel the unskilled intensive good, has negative effects on unskilled labour. However this benefits skilled labour which is shown in the increase in skilled labour wages (E to E”). in addition the

decrease in unskilled labour wage (E to E”) ultimately causes skill workers to benefit from the fall in relative prices of apparel the unskilled intensive good whilst unskilled employees take the fall. The theory is helpful in analyzing the impacts of factor income in situations where; a country operating in a Heckscher – Ohlin model has imposed government regulations or tariffs or they move from autarky to free trade. Given the date from Question 2 Correlation Coefficient for Australia: 0.653835 Correlation Coefficient for the Philippines: -0.512 It can be assumed that the data obtained for Australia agrees whilst the Philippines disagrees with the Stolper Samuelson Theorem. As mentioned previously, the theory states that an increase in the relative price of the good will cause an increase in the price of the abundant factors whilst causing a decrease in the other factor. Given Australia’s correlation coefficient, it assumes that a positive relationship exists between openness to trade and industrial income inequality. Whereas the opposite can be said about the Philippines in which a negative relationship exists. This ultimately disagrees with the Stolper Samuelson Theorem....