Excel component needed.Assignment instructions and questions included.
1. Calculate openness as a percentage for Paraguay and Poland. Explain how you calculated openness, i.e., write down the formula. Using a graph of Openness (as a percentage) versus time, explain in up to 200 words how openness has changed for these countries from 2001 to 2014. Put Paraguay and Poland in the same graph and make sure your graph is properly labelled. For this question, the following formula to calculate openness: The source of the Polish economic success was due to the accession into the European Union in 2004. After the accession the nation experienced growth of the export sector and increased inflow of foreign direct investments. Since the accession Polish exports to the EU tripled from 2004 to 2014, from EUR 48.4 billion to 125.2 billion. In 2004, the total intra-EU exports was 2.3 per cent and increased to 4.3 per cent in 2014 which placed Poland in the eighth place among the leading exporters in intra-EU trade (Kolodziejczyk, 2016). Presented in Figure 3, FDI inflows increased rapidly after the 2004 EU accession and has continued to grow until the financial crisis that started in year 2008. Majority of the direct investments in Poland come from the EU, in particular from the EU-15 countries (Kamińska and Babula, 2014). The source of Paraguay 2. Explain in up to 200 words the relationship between Openness and economic development by calculating the correlation coefficient between GDP per capita (proxy for economic development) and Openness for Paraguay and Poland, respectively. [Here you have to use the CORREL command in Excel]. (6 marks)
3. Consider the following model of trade between Home and Foreign. Assume throughout that those two countries are the only two countries in the world, at least for purposes of trade. There are two goods: Corn and Radio. Consumers always spend one-third of their income on Corn and the remainder on Radios. The only factor of production is labor. Each home country worker can produce 2 units of Corn or 3 units of Radios per unit of time, while each foreign worker can produce 2 units of Corn or 4 units of Radios per unit of time. There are 30 workers in Home and 60 workers in Foreign. (a) Which country has an absolute advantage in Radios? In Corn? Assuming that wages are equal in both countries, Foreign country has absolute advantage in producing Radios because its workers are more productive (can produce 1 more unit of Radio per worker) than workers in the Home country. However, they are equally productive in producing Corn so neither countries have absolute advantage for the production of Corn.
(b) Which country has a comparative advantage in Radios? In Corn? According to the Ricardian Model, a country has a comparative advantage in a commodity if its opportunity cost in producing that commodity is lower than the other country. In this case, the opportunity cost of producing one additional unit of Radio in terms of corn is: Home: 23 = 1/3 unit of corns for Home country Foreign: 24 = ¼ unit of corn for Foreign country Foreign country has a lower opportunity cost therefore has a comparative advantage in producing Radios. If Foreign country has comparative advantage in producing Radios, then Home country must have comparative advantage in producing corn because of the reciprocal property of opportunity cost. Country Corn Radio Home 2 units (2/3=1.5) 3 units (2/3=0.66) Foreign 2 units (4/2=2) 4 units (2/4=0.5) (c) Draw the typical worker’s budget line in both countries (put Corn on the vertical axis and Radios on the horizontal axis).
There are 30 workers in home country and 60 workers in foreign country. Calculation of worker’s budget in both countries below: Budget line for home country: M=2*30 + 3*30 M=150 If consumers spend one third of their income on corn and two third of their income on radio, Corn=150*1/3 Corn=50 Remaining on radios=150-50=100 Budget line for foreign country: M=2*60 + 4*60 M=120 + 240 M=360 If the consumers spend one third of their income on corn and the remainder on radios, Corn=360*1/3=120 Radio=360-120=240. Budget line graph for home country: Budget line graph for foreign country:
(d) Draw the production possibility frontier for each country (put Corn on the vertical axis and Radios on the horizontal axis). Country Labour Corn Radio Home country 30 2 3 Foreign country 60 2 4 Country Corn Radio Home country 2 x 30 = 60 3 x 30 = 90 Foreign country 2 x 60 = 120 4 x 60 = 240 Slope for Home Country: Slope for Foreign Country: (d) Find the autarky relative price of Radios in both countries (i.e., the price of Radio divided by the price of Corn). 1.5 RS RD 0.67 If price of Rice and Cocoa are indifferent then the relative price would be 2Pc= 3Pr or 1Pc= 1.5Pr for Home Country. 2 RS RD 0.5 If price of Rice and Cocoa are indifferent then the relative price would be 2Pc= 4Pr or 1Pc= 2Pr for Foreign Country.
(f) What is the optimal consumption and production for each country under autarky? Corn Home country consumption and production 2. Radio 3 Relative price in home country is: 2Pc=3Pr Home corn: Home radio: The optimal consumption and production for Home country is 20 corns and 60 radios. Corn Foreign country consumption and production 2. Slope Radio 4 Relative price in foreign country is: 2Pc=4Pr Foreign corn: Foreign radio: The optimal consumption and production for Foreign country is 40 corns and 160 radios. Bibliography Kamińska, T. and Babula, E., 2014. The Hicksian Effects and FDI after Poland’s Accession to the European Union. JOURNAL OF INTERNATIONAL STUDIES, 7(3), pp.20-31. Kolodziejczyk, K., 2016. Poland in the European Union. Ten Years of Membership. Revista UNISCI, 0(40). Openness for Poland and Paraguay Paraguay200120022003200420052006200720082009201020112012201320140.807388793347063930.901358886821440270.948602359325283690.955912704342876231.04203886537361521.07770004139907741.03518361682787981.03545625512720680.962996072786728831.06584879188233981.02822612434635310.986284002555859570.943876964263812730.88070772613896064Poland200120022003200420052006200720082009201020112012201320140.58075194717779410.609244563092064430.69437305687231810.712131669706836280.702749609275615140.777913937245752530.806620046227491510.807544540767252790.752259132726234010.821083264489399390.87082722756352970.893274621415530160.90691866412778110.9373293738868419Year Openness (%)