Insurers' journeys to build a mastery in the IoT usage
External Economies and International Production Location
1.
2013/8/29(Sat)
Chapter7
External
Economies
of
Scale
and
the
Interna@onal
Loca@on
of
Produc@on
Interna@onal
Economics
theory
and
policy
1
2. Previous
contents
• Chapter1
Introduc@on
• Chapter2
World
trade:
An
overview
• Chapter3
Labor
produc@vity
and
compara@ve
advantage
– :The
Ricardian
model
• Chapter4
Specific
factors
and
Income
distribu@on
• Chapter5
Resources
and
trade
– :The
Heckscher-‐Ohlin
model
• Chapter6
Standard
trade
model
2
3. Chapter1
Introduc@on
7
themes
recur
throughout
the
study
of
interna@onal
economic
1. The
gains
from
trade
2. The
paWern
of
trade
3. How
much
trade?
4. Balance
of
payments
5. Exchange
rate
determina@on
6. Interna@onal
policy
coordina@on
7. The
interna@onal
capital
markets
3
4. Chapter2
World
trade:
An
overview
• The
gravity
model
– The
trade
between
any
two
countries
is
propor@nal
to
the
products
of
their
GDP
and
diminishes
with
distance.
• Interna@onal
trade
is
at
record
levels
rela@ve
to
the
size
of
the
world
economy.
• Manufactured
goods
dominate
modern
trade
today.
– Developing
countries
have
shi^ed
from
being
mainly
exporters
of
primary
products
to
being
mainly
exporters
of
manufactured
goods.
4
5. How
much
trade?
• The
seemingly
eternal
debate
over
how
much
trade
allow
is
the
most
important
policy
theme.
-‐100
-‐80
-‐60
-‐40
-‐20
0
20
40
60
80
100
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
exports
import
net
exports
(Trillion
yen)
5
6. Chapter3
Labor
produc@vity
and
compara@ve
advantage
:The
Ricardian
model
• The
Ricardian
model
– Labor
is
the
only
factor
of
produc@on,
and
countries
differ
only
in
the
produc@vity
of
labor
in
different
industries.
– A
countries
produc@on
paWers
is
determined
by
compara@ve
advantage.
• Trade
benefits
a
country
in
either
of
two
ways.
– Instead
of
producing
a
good
for
itself,
a
country
can
produce
another
good
and
trade
it
for
the
desired
good.
– Trade
enlarges
a
countries
consump@on
possibili@es.
6
7. Chapter4
Specific
factors
and
Income
distribu@on
• Specific
factor
model
– Differences
in
resources
can
cause
countries
to
have
different
rela@ve
supply
curves,
and
thus
cause
interna@onal
trade.
– Factors
specific
to
export
sectors
in
each
country
gain
from
trade,
while
factors
specific
to
import-‐compe@ng
sectors
lose.
Mobile
factors
that
can
work
in
either
sector
may
either
gain
or
lose.
• Interna@onal
trade
o^en
has
strong
effects
on
the
distribu@on
of
income
within
countries.
– Factors
cannot
move
instantaneously
and
costlessly
from
one
industry
to
another.
– Changes
in
an
economy’s
output
mix
have
differen@al
effects
on
the
demand
for
different
factors
of
produc@on.
7
8. Chapter5
Resources
and
trade
:The
Heckscher-‐Ohlin
model
• Model
of
two-‐factor
economy
– Two
countries,
two
goods,
two
factors
of
produc@on
• Heckscher-‐Ohlin
theory
– Countries
tend
to
export
goods
that
are
intensive
in
the
factors
with
which
they
are
abundantly
supplied.
• The
owners
of
a
country’s
abundant
factors
gain
from
trade,
but
the
owners
of
scarce
factors
lose.
– There
are
s@ll
gains
from
trade,
in
the
limited
sense
that
that
winners
could
compensate
the
losers,
and
everyone
would
be
beWer
off.
8
9. Chapter6
• The
standard
trade
model
– The
rela@onship
between
the
produc@on
possibility
fron@er
and
the
rela@ve
supply
curve.
– The
rela@onship
between
rela@ve
prices
and
rela@ve
demand.
– The
determina@on
of
world
equilibrium
by
world
rela@ve
supply
and
world
rela@ve
demand.
– The
effect
of
the
terms
of
trade
9
11. Learning
goals
• Recognizing
why
interna@onal
trade
o^en
occurs
from
increasing
returns
to
scale
• Understanding
the
differences
between
internal
and
external
economies
of
scale
• Discuss
the
sources
of
external
economies
• Discuss
the
roles
of
external
economies
and
knowledge
spillovers
in
shaping
compara@ve
advantage
and
interna@onal
trade
paWers.
11
12. Compara@ve
advantage
12
Compara@ve
advantages
Countries
differ
either
in
their
resources
or
in
their
technology
and
specialize
in
the
things
they
do
rela@vely
well.
Economies
of
scale
make
it
advantageous
for
each
country
to
specialize
in
the
produc@on
of
only
limited
range
of
goods
and
services
13. Economies
of
scale
and
interna@onal
trade:
An
overview
• The
models
of
compara@ve
advantage
were
based
on
the
assump@on
of
constant
returns
to
scale.
• To
take
advantage
of
economies
of
scale,
each
of
the
countries
must
concentrate
on
producing
only
a
limited
number
of
goods.
• It
makes
it
possible
for
each
country
to
produce
a
restricted
range
of
goods
and
to
take
advantage
of
economies
of
scale
without
sacrificing.
13
Table7-1 Relationship of input to out put for a Hypothetical industry
Output
Total labor input
Average labor of input
5
10
2.00
10
15
1.50
15
20
1.33
20
25
1.25
25
30
1.20
30
35
1.17
14. Economies
of
scale
and
market
structure
firms
producing
total industry production
Standard situations
10
100
1,000
External economies of scale
20
100
2,000
Internall economies of scale
5
200
1,000
14
• External
economies
of
scale
occur
when
the
cost
per
unit
depends
on
the
size
industry
but
not
necessarily
on
the
size
of
any
one
firm.
– An
industry
where
economies
of
scale
are
purely
external
will
typically
consist
of
many
small
firms
and
be
perfectly
compe@@ve.
• Internal
economies
of
scale
occur
when
the
cost
per
unit
depends
on
the
size
of
an
individual
firm
but
not
necessarily
on
that
of
the
industry.
– Internal
economies
of
scale
give
large
firms
a
cost
advantage
over
small
firms
and
lead
to
an
imperfectly
compe@@ve
market
structure.
15. The
theory
of
external
economies
• Specialized
suppliers
– Ability
of
cluster
• Labor
market
pooling
– A
geographical
concentrated
industry
• Knowledge
spillovers
– A
geographical
concentrated
industry
15
16. External
economies
and
market
equilibrium
• When
there
are
external
economies
of
scale,
the
average
cost
of
producing
a
good
falls
as
the
quality
produced
rises.
• The
larger
the
industry’s
output,
the
lower
the
price
at
which
firms
are
willing
to
sell,
because
their
average
cost
of
produc@on
falls
as
industry
output
rises.
16
17. External
economies,
output,
and
prices
17
• 【Before
trade】
Chinese
buWon
prices
in
the
absence
of
trade
would
be
lower
than
U.S
buWon
prices.
•
【A^er
trade】
Chinese
buWon
industry
will
expand,
while
the
U.S.
buWon
industry
will
contract
:
As
Chinese
industry’s
output
rises,
its
cost
will
fall
further.
As
the
U.S.
industry’s
output
falls,
its
costs
will
rise.
• 【Chapter6】If
cloths
is
rela@vely
cheap in
Home
and
rela@vely
18. External
Economies
and
the
paWern
of
trade
18
• The
reason
for
determining
the
paWern
of
specializa@on
and
trade
in
industries
with
external
economies
of
scale
is
historical
con@ngency.
• Although
the
Vietnamese
industry
could
poten@ally
make
buWons
more
cheaply
than
China’s
industry,
China’s
head
start
enables
it
to
hold
on
to
the
industry.
• External
economies
poten@ally
give
a
strong
role
to
historical
accident
in
determining
who
produces
what,
and
may
allow
established
paWerns
of
specializa@on
to
persist
even
when
they
run
counter
to
compara@ve
advantage.
19. Trade
and
welfare
with
external
economies
19
• When
there
are
external
economies,
trade
can
poten@ally
leave
a
country
worse
off
than
it
would
be
in
the
absence
of
trade.
• While
external
economies
can
some@mes
lead
to
disadvantageous
paWerns
of
specializa@on
and
trade,
it’s
virtually
certain
that
it
is
s@ll
to
the
benefit
of
the
world
economy
to
take
advantage
of
the
gains
from
concentra@ng
industries.
• EX)City,
Frankfurt
20. Dynamic
increasing
returns
20
• When
an
individual
firm
improves
its
products
or
produc@on
techniques
through
experiences,
other
firms
are
likely
to
imitate
the
firm
and
benefit
from
its
knowledge.
• The
learning
curve
shows
that
unit
cost
is
lower
the
greater
the
cumula@ve
output
of
a
country’s
industry
to
date.
• Dynamic
scale
economies,
like
external
economies
at
a
point
in
@me,
poten@ally
jus@fy
protec@onism.
• The
argument
for
temporary
protec@on
of
industries
to
enable
them
to
gain
experience
is
known
as
the
infant
industry
argument.
21. Interregional
trade
and
economic
geography
21
Table7-2 Some examples of tradable and nontradable industries
Tradable industires
Nontradable industires
Motion pictures
Newspaper publishers
Securities, commodities, etc
Saving institutions
Scientific research
Veterinary services
• External
economies
play
an
important
role
in
shaping
the
paWern
of
interna@onal
trade,
but
they
are
even
more
decisive
in
shaping
the
paWern
of
interregional
trade.
• Determining
the
loca@on
of
tradable
industries,
in
some
cases,
natural
resources
play
a
key
role.
• Clusters
promote
localized
networking,
to
enhance
crea@vity.
• A
historical
accident
play
a
key
role
to
explain
how
a
par@cular
region
develops
the
external
economies
that
support
an
industry.