International Trade Agreements

Essay by la_dulce_damaUniversity, Bachelor'sA+, October 2003

download word file, 4 pages 3.5

Downloaded 317 times

Rybczynski Theorem

This theorem is a property of the Heckscher-Olin Model, stating that, at constant prices, an increase of factor endowments will facilitate an increase in the production in an industry which uses that factor intensely. (i.e. Newly discovered caches of diamonds in South Africa would lead to increased diamond exportation. This could lead to less productivity in other industries. Suppose that due to a fixed level of employable people the diamond mines paid more for labor, laborers would move to that industry and abandon their previous positions.)

The Rybczynski theorem demonstrates how changes in a factor endowment affect the outputs of the goods when full employment is maintained. The theorem is useful in analyzing the effects of capital investment, immigration and emigration within the context of a given model.

This means that in general, an increase in a country's endowment of a factor will cause an increase in output of the good which uses that factor intensively, and a decrease in the output of the other good.

Free trade

International trade that is free of such government interference as import quotas, export subsidies, protective tariffs,

Customs union

An association of nations which promotes free trade within the union and establishes common tariffs on trade with nonmember nations

Common Market

A group of countries that eliminate all barriers to movement of both goods and factors among themselves, and that also, on each product, agree to levy the same tariff on imports from outside the group. A common market is equivalent to a customs union plus free mobility of factors.

Economic Union

A common market with the added features of monetary, fiscal, welfare policies, harmonized across the member countries.

Progression of Markets

Free trade areas are the least restrictive of trade agreements with limited or no tariffs, quotas, or other trade...