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4-1
The Theory of Absolute Advantage
Rice
Co
co
a
Figure 4.1
G’
0 5 10 15 20
5
10
1
5
20
A
BK
G
K’
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4-2
The Theory of Comparative Advantage
Figure 4.2
3.75 7.5
2.5
0 5 10 15 20
5
10
1
5
20
Co
co
a
Rice
G
C
A
K
K’B
G’
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4-3
Ghana’s PPF under Diminishing Returns
Co
co
a
Rice
G’
G
0
Figure 4.3
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4-4
The Influence of Free Trade on the PPF
Figure 4.4
Co
co
a
Rice
G’
PPF2
0
PPF1
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4-5
A Link Between Trade and Growth
Sachs and Warner,1970 to 1990 study
Open economy developing countries grew 4.49%/year.
Closed economy developing countries grew 0.69%/year.
Open economy developed countries grew 2.29%/year.
Closed economy developed countries grew 0.74%/year.
Frankel and Romer,
On average,a one percentage point increase in the ratio
of a country’s trade to its GDP increases income/person
by at least 0.5%,For every 10% increase in the
importance of international trade in an economy,average
income levels will rise by at least 5%.
The Product Life-Cycle Theory
production
consumption
Figure 4.5
Exports
160
140
120
100
80
60
40
20
0
United States
Other Advanced Countries
Developing Countries
Stages of Production Development
New Product Standardized ProductMaturing Product
Imports
Imports
Exports
Exports
Imports
160
140
120
100
80
60
40
20
0
160
140
120
100
80
60
40
20
0
4-24
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Porter’s Diamond
Determinants of National Competitive Advantage
Factor Endowments
Firm Strategy,
Structure and
Rivalry
Demand Conditions
Related and
Supporting
IndustriesFigure 4.6
4-30
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