Trade and foreign countries, growth in globalized economy
23.10.2024
ING. MICHAL MEC

uTheory of comparative and absolute advantages in the economy.
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uComparative advantage means that one country has opportunity cost for making other types of good.
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uAbsolute advantage means that one country has lower cost for making some type of goods.
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uWhy is the Exchange between countries beneficial for both?
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uWhat is important for foreign trade?
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uWho creates demand for currency and who creates supply for currency?
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uTheory of Parity purchasing power – equality of two currencies, when I can buy for same sum of the
money in two countries the same goods and services
1.Absolute theory – the currency rate is determined by price levels
2.Relative theory – explains only the changes of currency rate
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uWhy should the currency rate equals?
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uTheory of Law of one price.
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uWhat is the problem? Non tradable goods.
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uWhat about the different change of price levels in the countries?
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uWhat about the currency rate and interest rates?
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uCurrency rate could be fixed or flexible. Most of the currency rate are set currency fluctuations
rate.
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uHow is the monetary policy effective in the open economy when the currency rate is flexible or
fixed?
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uHow is the fiscal policy effective in the open economy when the currency rate is flexible or
fixed?
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uThe currency can appreciate, depreciate (flexible) or devaluate and revaluate (fixed).
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uTrade in developing countries:
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uWhat affects the trade/wealth of the country?
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1.Geography
2.Exports
3.Culture
4.Religion
5.Institutions
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uGeography
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uWhat are the main factors in geography?
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1.Landscape
2.Climate
3.Access to sea/oceans
4.Location within the continent
5.
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uExports
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uWhat is the export of the developing countries?
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uIs it a brake or help for development of country? Explain.
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uWhat should developing countries to differentiate their exports?
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uCulture and religion
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uHow different culture or religion affects the growth?
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uExamples:
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1.Islam vs  Christianity
2.Protestants vs Catholics
3.US culture versus Europe culture
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uInstitutions
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uAll other factors are important for economic growth, but most significant for the development are
Institutions.
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uWhat boost poor country development?
uTechnology imports from more developed countries. What is the most important aspect for investors?
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uHow the institutions affects development? North Korea vs South Korea, Soviet countries vs. West
Europe, Hong – Kong /Tchai Wan vs surface China, European colonies
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uInstitutions
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uWhy institutions differs among countries?
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1.Effective institutions developed by market demand – Pareto theorem
2.Ideology
3.Institutions as byproduct
4.Social conflict
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uInstitutions
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uWhat leads to ineffective institutions?
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1.Hold-up stratégy
2.Politic losers
3.Economic losers
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