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A clockwork economy A three-dimensional trade model imbedded in the general equilibrium theory Koen Smet – Institute of International Economics and Development 2 nd FIW-Research Conference – International Economics

A clockwork economy

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A clockwork economy. A three-dimensional trade model imbedded in the general equilibrium theory Koen Smet – Institute of International Economics and Development 2 nd FIW-Research Conference – International Economics. Structure. - PowerPoint PPT Presentation

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Page 1: A clockwork economy

A clockwork economyA three-dimensional trade model imbedded in the general equilibrium theory

Koen Smet – Institute of International

Economics and Development

2nd FIW-Research Conference – International Economics

Page 2: A clockwork economy

Structure

• South Africa´s trade structure with the EU and China and its evolution between 1993-2006.

• New classification measure

• A three dimensional trade model

• Basic structure

• Factor intensity

• A graphical solution

• The endowment triangle

• Triangles of diversification

• Conclusion

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Page 3: A clockwork economy

The evolution of the South African trade structure 1993-2006

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Page 4: A clockwork economy

Dynamic analysis: new approach

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Trade

DateGL

Intra

industry

Inter

industryRCA

Inter

Adv.

Inter

Disadv.

Brül

Brül

Brül

Intra-into (2%)

Intra-out of (6%)

Intra-intra (9%)

Inter-into (+) (8%)

Inter-out of (+) (8%)

Inter-intra (+) (8%)

Inter-into (-) (6%)

Inter-out of (-) (32%)

Inter-intra (-) (21%)

Page 5: A clockwork economy

Revealed Comparative AdvantagesGeneral

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Page 6: A clockwork economy

Export Flows – Matrix Classification

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Page 7: A clockwork economy

Results of the empirical analysis

• General findings

• Grubel-Lloyd index

• Trade specialisation between 1993 and 2006

• Trade Flows

• Imports (EU): Medium and high-technology products, whose production is labour- or capital-intensive

• Imports (China): Labour-intensive, low- and medium-technology consumer goods

• Exports: Primary resource-based manufactures (cf. mining and quarrying industries) and low-technology capital-intensive manufactures

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Page 8: A clockwork economy

Theoretical Model - Inspiration

• Literature:

• Samuelson (1953)

• Chipman (1966 / 1969)

• Batra (1970)

• Jones and Scheinkman (1977)

• Chang (1979)

• Takayama (1981)

• Ethier (1984)

BUT: Focus on the mathematical solvability of the model and the generalisation of the 2x2x2 theorems.

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Page 9: A clockwork economy

Theoretical Model - Assumptions

• Basic structure

• Three production factors: L, H and K

• Three industries

• Three countries: South Africa, EU and China

• Further assumptions

• Zero-Profit condition

• Market-Clearing condition

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Page 10: A clockwork economy

Theoretical Model – Factor Intensity

• Double bilateral comparison is not applicable

• The ratio of the distributive share of a certain factor within a specific industry and this factors overall distributive share

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HwLwKw

Kw

pXwK

z

HLK

K

K

K

11

1

1

Page 11: A clockwork economy

The Endowment Triangle

• Literature

• McKenzie (1955)

• Leamer (1987)

• Jones and Marjit (1991)

• Jones (1992 / 2005)

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Page 12: A clockwork economy

Graphical solution – The concept of the endowment triangle

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K

HL

(1,0,0) (0,1,0)

(0,0,1)

v1

v2

(L1,H

1,K

1)

Page 13: A clockwork economy

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Endowment triangle - Application

K

HL

ZAF

EUCH

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Triangles of diversification

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Import and export flows

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Concluding remarks

• During the period 1993-2006 specialisation was the dominant trend within the South African trade structure.

• The concepts of endowment triangles and of triangles of diversification allow for the construction of a three-dimensional Heckscher-Ohlin-Samuelson trade model.

• Further research should concentrate on:

• a discussion of the input-vectors.

• a comparative static analysis between autarky and free trade.

• the empirical justification of educated assumptions.

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