Nama: A.

Fahri Azizy 201210360311026 Sistem Ekonomi Indonesia

Problems: 1. Canada and Australia are (mostly) English-speaking country with a population that is not too different in size of population (Canada is 60 percent greater). But Canada's trade twice as large, relative to GDP, unlike in Australia. Why does this happen? According to me, the difference of GDP value between Canada and Australia is so significant because of trading route. Australia expects a high cost of transporting imports and exports, which is reducing the attractiveness of trading. When Canada has a border with the major economies, in this case is U.S. and Australia has a long distance with large economy countries, it makes sense that Canada will always be more open and more increased than Australia.

2. Mexico and Brazil have very different trading patterns. Mexico trades mainly with the United States, Brazil on trade with the United States and the European Union. In additon, Mexico does much more trade realive to its GDP. Explain this difference using the gravity model.?Mexico located next to the U.S., but so far from the European Union (EU). It makes sense that most U.S. trade with Brazil so far away from them, so that trade is divided to two. Mexico trade more than Brazil in part because it is close to major economy (U.S.) and partly as a member of the free trade agreements with major economies (NAFTA). Brazil is far from any major economy and the free trade agreements with countries that are relatively small amount.

3. Equation (2.1) says that trade between any two countries is proportional to the product of their GDPs. Does this mean is that if the GDP of any country in the world doubled, world trade will quadruple? No. The world trade will not be quadrupled. The point is while the world GDP has doubled, it is increasing the possibility of international trade. When the local economy has doubled, it is increasing the possibility of domestic trade. Gravity equation still holds. If we fill the equation, we will see where the equation is 0.1 GDPi GDPj, changed into 0.05 GDPj GDPi. The coefficient on each GDP is still single, but overall constant has changed.

4. Over the past few decades, the East Asian economies has increased its share in world GDP. Similarly, intra-East Asian trade - that is, trade among East Asian nations-has grown as share of world trade. More than that, the East Asian countries do an increasing share of their trade with each other. Explain why, using the gravity model. As part of the world GDP of the country grew East Asia, then in any trading relationship involving East Asian economies, the size of the East Asian economy has grown. This makes trade relations with the countries of East Asia larger over time. The logic is similar to why countries trade more with each other. Previously, they were quite small economy, which means that their market is too small to import a large number. As they become richer and consumption demands of their people up, they each can import more. Thus, while previously they had focused their exports to other rich countries, from time to time, they become part of the club of rich and thus a target for exports to each other. Once again, using the gravity model, while South Korea and Taiwan were both small, their product GDP is very small, which means that despite their proximity, there is little trade between them.

5. A century ago, most British imports came from relatively distant locations: North America, Latin America, and Asia. Today,most British imports come from other European countries. How does this fit with the changing types of goods that make up world trade?

A century ago, most of the world trade is a commodity that defined by the climate or geography. British imported goods that can not make their own. This means importing things like cotton or rubber from countries in the Western Hemisphere or Asia. Because the British climate and natural resources similar to that in the rest of Europe, it is less of a need to import from other European countries. In the aftermath of the Industrial Revolution, in which trade and growing manufacturing accelerated by improvements in transport and communications is not surprising that the UK economy will change over to the nearest and in Europe for many trades. This is a direct prediction of the gravity model.