International Relations and Trade Liberalization

Trade Liberalization 

The trade liberalization shall encourage the exchange of the good, the computer and the food items at the same time free movement of skilled and unskilled labor (Horgos & Tajoli, 2015). The Heckscher-Ohlin model, the overall effect in the market wage difference would in the long term equalized relative to the volumes of export and imports. The free migration movement of skilled workers or unskilled labor reduces the population ratio of qualified and unskilled labor in Germany and raises the rate in Italy. The effect is an increase in the wage ratio between the skilled and unskilled labor in Germany and lowered in Italy. The trade of goods that involves the computer and the food items influences the salary differences. Germany will export computers to Italy which results to exporting more skilled workers than the unskilled workers. Equally, Germany would want to import more food items because of lack of the unskilled labor to produce own food. Therefore Italy shall export more food items and unskilled labor to Germany. The effect will affect the skilled workers in Italy experiencing a fall in their wage as compared to the unskilled labor while the unskilled workers would experience the rise in the wages.

Long-Run Specific-Factors Model 

The long-run specific factors influenced by the Heckscher-Ohlin model which assumes that the capital and labor will be fully mobile. The intensive Foreign Direct Investment inflows in New Zealand increase the factors of production especially in the capital and technology intensive sectors because the multinationals have the competencies in efficient production. In the short-term specific factors model, the expectation is that the capital cannot be homogeneous because it is unique to the steel sector and the agricultural industry. However, labor is completely mobile in both the sector. In the short term, the impact of trade between New Zealand and the world affects the output level. In a real sense, the steel and corn industry have specific choices of the output level which also influences the labor usage. In the steel industry, a capital intensive industry both in long-term and short term, the capital benefits diminished in the long term. It is assumed that, with the model, in the long run, capital and labor becomes homogenous at equilibrium. The marginal output of the steel industry will have diminishing return because of the high capital stocks thus each additional work has a small increment in the productivity of the production. In the corn industry, assuming more investments in the sector by FDI, each additional unit of labor would have an increment in the output of corn. It is because the return on labor is expected to be high. The comparison would take effect to the difference in the marginal product value per unit labor increment. Capital is seen more immobile in the long term than labor (Suranovic, 2010). 

Manufacturing and Agricultural goods 

The analysis of the factors endowments shows the production abundance in each country. The abundance has a comparative advantage in each trading partners by the use of the ratio of capital- labor used to produce each unit of manufactured or agricultural goods. The capital-labor ratios are one-fifth and one-sixth for Germany and Italy respectively. Germany is capital abundant because of the higher value of the ratio while Italy is labor abundant. In the production of units of manufacturing and agricultural goods, manufactured goods are more capital extensive while agricultural products are more labor intensive. The illustration of the capital-labor ratio of manufactured goods being one-fifth while that of agriculture being a sixth, the ratio value of manufactured goods being high makes it relatively capital-intensive than the agricultural products. In this case, every half a unit of manufactured goods would require only four workers and a machine. The agricultural commodities are more labor intensive because for every unit produced requires eight employees using one machine. However, Germany is relatively capital abundant while Italy is labor abundant country while the manufacturing is capital intensive than agricultural production. Germany can easily produce manufacturing goods while Italy can produce more agricultural products. According to Heckscher-Ohlin trade model, Germany will produce and export manufacturing goods while Italy shall export agricultural commodities.

Production Possibility Curve 

A productivity possibility curve is a tool that maps the productivity or consumption of one good compared to the good (Feenstra & Taylor, 2017). It considers the factors of production which are the capital, labor, and technology. In effect, any point outside the curve is seen as inefficient in production. Brazil is regarded better off trading with a different country. This is because according to the consumption, it consumes significantly for both the cars and apples. For, example, Brazil could trade with Peru and negotiates to purchase five units of cars for ten apples; the country’s PPC indicated that it would have an additional five cars on the market for consumption in the economy. This would not affect the curve since it has the same amount of use before the trade. The extra five units can still be traded entirely for more apples or otherwise keep the cars for unexpected future consumption. In this analysis, the consumption bundle of the two goods is seen greater than before the trade with Peru. This PPC shows how opportunity cost in the consumption is equal in for both cars and apples. More consumption of apples equals to the same aunt of consumption, making the country efficient and does not require a trade off with another country for consumption because it will have additional units of consumption.

Reference

Horgos, D., & Tajoli, L,. (2015). How Offshoring can affect the Industries’ Skill Composition.  Economies ,  3 (2), 72-99.

Feenstra, R. C., & Taylor, A. M,. (2017). International trade (4th ed.). New York, NY: Worth.

Suranovic, S,. (2010).  International trade: Theory and policy The Saylor Foundation.