4Do you understand the gravity model as it relates to the re

4.Do you understand the gravity model as it relates to the recent increase in East Asian trade?

5. Do you understand the winners and losers from trade in the Ricardian, Specifc Factor, and Heckscher –Ohlin trade models?

6. Can you explain the basis for trade in all the models covered so far and what the impacts on income distribution are suggested by them?

8. Discuss the state of globalization from 1880 to 2007.

Marginal product of labor MPL MPL 8 MPL IIMPL O Home L, Foreign ? ? Migration of ? labor from Home to Foreign Total world labor force

Solution

1. Gravity model was first coined by Jan Tinbergen, who proposed this model was related to the size of the bilateral relations between two countries is based on the Newtons therory of gravity equation.This model in the present globalisation showing its theoritical framework in present relationship of UK with EU.

This model explains the bilateral trade between two countries in propotional to the size which is measured by GDP and inversely related to the distance of between two countries.

This model has following criteria:

a) Larger country (Measured in terms of GDP) attart more trade.

b) Countries which are at smaller distance has more trade.Example : India and china - China is largest trading partner of Inida and China as India is the nearest country to India tries to dump more manufacturing goods in to it.

c) Country which is smaller(interms of geographical area) in size, more open totrade as they cannot consume more from its production. Example: Switezerland.

d) Borders impede trade.Example: Inida and Pakistan - Though India and Pakistan can become largest trading partners to each other becoause of the smallest distance, but because of their internal issues(espeacially border issues) trade between them impeded.