NEW GENERATION UNIVERSITY COLLEGE

INTRODUCTION TO INTERNATIONAL
RELATION
INDIVIDUAL ASSIGNMENT

NAME: Natnel Robel

ID NUMBER: 4019
YEAR: SECOND YEAR
SECTION: B

SUBMISSION DATE: 1/11/2024

SUBMITTED TO: Mr. Thomas
1) Why is international trade essential for economic growth?
Consider the economic benefits such as job creation,
resource efficiency, and consumer access to a wider variety
of goods.

International trade creates jobs by boosting production and exports. It also allows countries to
specialize, making resource use more efficient, leading to economic growth. International trade
brings us a wider variety of goods at competitive prices, increasing consumer choice and
satisfaction, ultimately contributing to economic growth.

International trade connects economies, allowing countries to access goods and services they
wouldn't otherwise have, fostering growth and prosperity for all involved.

5) In what ways does Ricardo's Comparative Advantage

differ from Absolute Advantage? Discuss real-world
examples where countries benefit from producing goods in
which they have a comparative, but not absolute, advantage.

Comparative advantage focuses on opportunity cost - what you give up to produce something,
not just how much you produce. A country can specialize in what it's relatively good at, even if
another country is better overall. Think of a country that's amazing at both farming and
technology. They might still be better off focusing on technology because they have a lower
opportunity cost for it, meaning they give up less farming to produce tech. This specialization
through trade benefits everyone because countries get more of what they need, even if they don't
produce it themselves, leading to greater economic prosperity.

6) How do the Heckscher-Ohlin model and the Leontief

Paradox relate to each other? Analyze how the paradox
challenges the assumptions of the Heckscher-Ohlin theory.

Heckscher-Ohlin predicts that countries export goods using abundant factors, but Leontief found
the US, capital-rich, exported labor-intensive goods, challenging the model's assumptions. The
paradox highlights that factors beyond factor endowments, such as technology, demand, and
imperfect competition, influence trade patterns, making the Heckscher-Ohlin model an
oversimplification. The paradox doesn't negate the model entirely but forces economists to
acknowledge its limitations and consider a broader range of factors that shape global trade.

7) Can the Product Life Cycle theory explain modern

technological innovations and trade in the digital era?
Reflect on whether this theory is still applicable in fast-
moving technology markets (e.g., smartphones, Al).

While the PLC theory explains how production moves from high- to low-income countries as
products mature, rapid innovation in tech makes this cycle shorter and less predictable.
Globalized R&D, with innovation happening in many countries, blurs the traditional "innovation
center" concept and makes the PLC less clear-cut.

Digital products, easily replicated and delivered globally, defy the traditional PLC, requiring a
more nuanced understanding of tech trade in the digital era. While the PLC theory explains how
production moves from high- to low-income countries as products mature, rapid innovation in
tech makes this cycle shorter and less predictable. Globalized R&D, with innovation happening
in many countries, blurs the traditional "innovation center" concept and makes the PLC less
clear-cut. Digital products, easily replicated and delivered globally, defy the traditional PLC,
requiring a more nuanced understanding of tech trade in the digital era.

8) How do changes in the terms of trade affect a country's

economic welfare? Discuss the impact of favorable versus
unfavorable shifts in terms of trade on developing versus
developed nations.

Favorable terms of trade (getting more imports for the same exports) boost a country's welfare,
while unfavorable terms (getting less imports for the same exports) reduce it. Developing nations
often benefit from favorable terms of trade for primary commodities, but this can be volatile.
Developed nations with more diversified exports are less affected by shifts. Long-term economic
growth relies on increasing productivity and competitiveness, not solely on favorable terms of
trade, which can be temporary and subject to external factors.

9) What role do commodity price fluctuations play in

determining a country's terms of trade? Consider how
volatile markets, such as oil or rare minerals, influence
terms of trade, especially for resource-dependent countries.

Commodity price fluctuations significantly impact terms of trade, especially for resource-
dependent countries, as these prices determine the value of their exports.

Volatile markets for oil, rare minerals, or agricultural products can lead to favorable terms of
trade when prices rise but worsen them when prices fall, creating economic instability for reliant
nations. Countries heavily dependent on commodity exports need to diversify their economies to
reduce vulnerability to price swings and ensure long-term economic stability.
10) Can unfavorable terms of trade ever benefit a country's
long-term economic growth? Explore counter-intuitive
scenarios where short-term losses in trade terms lead to
innovation and competitiveness.

Unfavorable terms of trade can act as a catalyst for innovation and competitiveness, forcing
countries to find ways to produce more efficiently, improve product quality, or explore new
export opportunities.

A decline in export prices might incentivize investment in technology, research, and human
capital development, leading to a more diversified and resilient economy in the long run.

While challenging in the short term, experiencing unfavorable terms of trade can ultimately force
a country to become more competitive and less dependent on commodity exports, leading to
sustainable economic growth.

 12. How do trade wars (e.g., US-China trade war)

influence global economic dynamics and multilateral
trade relations? Explore the consequences of tariffs
and counter- tariffs on global supply chains and
economic alliances.

 Trade wars disrupt global supply chains, leading to higher costs for businesses and
consumers, and potentially reducing overall economic efficiency. Tariffs and counter-
tariffs can create trade diversion, where countries seek alternative suppliers or markets,
resulting in the formation of new economic alliances and trade blocs.
 Trade wars can damage multilateral trade relations, making it harder to resolve trade
disputes and set global trade rules, leading to a less stable and predictable trading
environment.
14. To what extent do protectionist policies hinder or
promote domestic innovation and competitiveness? Debate
whether protectionism truly benefits long-term industrial
growth or leads to inefficiencies.

Protectionist policies can initially shield domestic industries from competition, but this can stifle
innovation and long-term growth by reducing incentives to improve efficiency and develop new
technologies.

While protectionism might offer short-term benefits, it can lead to inefficiencies, higher prices
for consumers, and a less competitive economy in the long run, as industries become complacent
and reliant on government support. Promoting domestic innovation and competitiveness requires
a combination of smart policies that encourage competition, foster research and development,
and support open markets, rather than protectionist measures that stifle innovation.

15. How does a country's balance of payments reflect its

economic health? Discuss how persistent current account
deficits or surpluses can signal economic challenges or
strengths.

A country's balance of payments, which tracks all its economic transactions with the rest of the
world, provides insights into its economic health, revealing patterns of trade, investment, and
financial flows. Persistent current account deficits can signal potential economic challenges,
indicating that a country is consuming more than it produces, potentially leading to increased
debt and dependence on foreign capital. While a current account surplus can indicate a strong
economy, persistent surpluses can also suggest a lack of domestic demand and a reliance on
exports, potentially making the economy vulnerable to external shocks