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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...

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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, XXXXXXXXXXPresented 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 co
elation 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= XXXXXXXXXX
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
    Labou
    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 XXXXXXXXXXRS
XXXXXXXXXXRD
XXXXXXXXXX0.67
If price of Rice and Cocoa are indifferent then the relative price would be 2Pc= 3Pr or 1Pc= 1.5Pr for Home Country.

2 XXXXXXXXXXRS
XXXXXXXXXXRD
XXXXXXXXXX0.5
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         XXXXXXXXXXHome country consumption and production
XXXXXXXXXX.
    Radio
XXXXXXXXXX3    
Relative price in home country is: 2Pc=3P
Home corn:     
Home radio:     
The optimal consumption and production for Home country is 20 corns and 60 radios.
Corn         XXXXXXXXXXForeign country consumption and production
XXXXXXXXXX XXXXXXXXXXSlope

    Radio
XXXXXXXXXX4
Relative price in foreign country is: 2Pc=4P
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
Paraguay    2001    2002    2003    2004    2005    2006    2007    2008    2009    2010    2011    2012    2013    2014     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX    Poland    2001    2002    2003    2004    2005    2006    2007    2008    2009    2010    2011    2012    2013    2014     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX     XXXXXXXXXX    Yea
Openness (%)
Answered Same Day Apr 03, 2020

Solution

Soma answered on Apr 05 2020
135 Votes
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.     
            
    Year
    Openness % Poland
    Openness % Paraguay
    2001 [YR2001]
    58.07519472
    80.73887933
    2002 [YR2002]
    60.92445631
    90.13588868
    2003 [YR2003]
    69.43730569
    94.86023593
    2004 [YR2004]
    71.21316697
    95.59127043
    2005 [YR2005]
    70.27496093
    104.2038865
    2006 [YR2006]
    77.79139372
    107.7700041
    2007 [YR2007]
    80.66200462
    103.5183617
    2008 [YR2008]
    80.75445408
    103.5456255
    2009 [YR2009]
    75.22591327
    96.29960728
    2010 [YR2010]
    82.10832645
    106.5848792
    2011 [YR2011]
    87.08272276
    102.8226124
    2012 [YR2012]
    89.32746214
    98.62840026
    2013 [YR2013]
    90.69186641
    94.38769643
    2014 [YR2014]
    93.73293739
    88.07077261
Openness is calculated as exports + imports as a percentage of GDP. Both Poland and Paraguay have shown a gradual increase in trade openness over the years since 2001.
The average openness for Poland is 77.66444039 for the given period of 2001-2014. On the other hand, the average openness for Paraguay is 97.65415146 for the given period of 2001-2014.
The calculated percentage and the chart clearly indicates that openness for Paraguay remains substantially higher compare to Poland over the time period. The above char shows some interesting findings: in 2013, the openness for the both the countries are found to be almost same. Poland is outpacing Paraguay is 2014.
Paraguay has become increasingly globalized economy. The growing global integration of Paraguay has reflected both in export to GDP and import GDP ratio. The share of exports as a percentage of GDP has increased from 13% in (1991-2002) to 23% in (2003-2014). Similarly, import to GDP has also shown an increase from 35% (1994-2005) to 51% in (2006-2013). (OxfordAnalyticadailyBrief, 2014)
The foreign trade has increased at a very rapid pace that reflects a high degree of openness. Agricultural products are the key exports and manufacturing goods are the major imports for the economy. Most importantly majority of the imports are reexported. (sice, n.d.)
Poland is relatively large and diversified economy with a lower trade openness. Poland is a country with high level of regional differences. Inter-regional difference plays an import role in explaining the lower trade openness. Komornicki ( 2015) has thoroughly investigated the export linkage in local economies. (Nazarczuk, 2017)
2. Explain in up to 200 words the relationship between Openness and economic development by calculating the co
elation coefficient between GDP per capita (proxy for economic development) and Openness for Paraguay and Poland, respectively. [Here you have to use the...
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