Which statement best conceptualizes the relationship between trade and economic growth?
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July 08 2021 Kalina Manova, University College London Search for other works by this author on: John Van Reenen, London School of Economics and MIT Search for other works by this author on: Stephen Teng Sun, City University of Hong Kong Search for other works by this author on: Zhihong Yu Search for other works by this author on: Kalina Manova University College London John Van Reenen London School of Economics and MIT Stephen Teng Sun City University of Hong Kong Any opinions and conclusions expressed here are our own and do not necessarily represent the views of the U.S. Census Bureau. All results have been reviewed to ensure data confidentiality. We thank the editor, referees, discussants, and seminar and conference participants for their feedback. We acknowledge funding from Economic and Social Research Council, European Research Council (grant agreement 724880), National Science Foundation, and Sloan Foundation. Received: July 30 2018 Accepted: December 19 2019 Online Issn: 1530-9142 Print Issn: 0034-6535 © 2020 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology 2020 The President and Fellows of Harvard College and the Massachusetts Institute of Technology The Review of Economics and Statistics (2021) 103 (3): 443–460.
AbstractWe study how management practices shape export performance using matched production-trade-management data for Chinese and American firms and a randomized control trial in India. Better-managed firms are more likely to export, sell more products to more destinations, and earn higher export revenues and profits. They export higher-quality products at higher prices and lower quality-adjusted prices. They import a wider range of inputs and inputs of higher quality and price, from more advanced countries. We rationalize these patterns with a heterogeneous-firm model in which effective management improves performance by raising production efficiency and quality capacity. © 2020 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology 2020 The President and Fellows of Harvard College and the Massachusetts Institute of Technology Supplementary dataYou do not currently have access to this content. Sign inClient AccountYou could not be signed in. Please check your email address / username and password and try again. Email address / Username ? Password David Ricardo (1772–1823) was a classical economist best known for his theory on wages and profit, the labor theory of value, the theory of comparative advantage, and the theory of rents. David Ricardo and several other economists also simultaneously and independently discovered the law of diminishing marginal returns. His most well-known work is Principles of Political Economy and Taxation (1817). Key Takeaways
What is the Labor Theory Of Value?Investopedia / Julie Bang Early Life and EducationBorn in England in 1772, one of 17 children, David Ricardo began working with his father as a stockbroker at the age of 14. He was disowned by his father at 21, however, for marrying outside his religion. His wealth came from his success with a business he started that dealt with government securities. He retired at the age of 41 after earning an estimated £1 million speculating on the outcome of the Battle of Waterloo. After retiring, Ricardo purchased a seat in Parliament for £4,000, andhe served as a member of Parliament. Influenced by Adam Smith, Ricardo held company with other leading thinkers of the time, such as James Mill, Jeremy Bentham, and Thomas Malthus. Notable AccomplishmentsComparative Advantage TheoryAmong the notable ideas that Ricardo introducedwas the theory of comparative advantage, which argued that countries can benefit from international trade by specializing in the production of goods for which they have a relatively lower opportunity cost in production even if they do not have an absolute advantage in the production of any particular good. For example, a mutual trade benefit would be realized between China and the United Kingdom from China specializing in the production of porcelain and tea and the United Kingdom concentrating on machine parts. Ricardo is prominently associated with the net benefits of free trade and the detriment of protectionist policies. Ricardo's theory of comparative advantage produced offshoots and critiques that are discussed to this day. Labor Theory of ValueAnother of Ricardo's best-known contributions to economics was the labor theory of value. The labor theory of value states that the value of a good could be measured by the labor that it took to produce it. The theory states that the cost should not be based on the compensation paid for the labor, but on the total cost of production. One example of this theory is that if a table takes two hours to make, and a chair takes one hour to make, one table is worth two chairs, regardless of how much per hour the makers of the table and chairs were paid. The labor theory of value would later become one of the foundations of Marxism. Theory of RentsRicardo was the first economist to discuss the idea of rents, or benefits that accrue to the owners of assets solely due to their ownership rather than their contribution to any actual productive activity. In its original application, agricultural economics, the theory of rents shows that the benefits of a rise in grain prices will tend to accrue to the owners of agricultural lands in the form of rents paid by tenant farmers. Ricardo's idea was later also applied to political economics, in the idea of rent-seeking, where the owners of assets that benefit from public policies that directly increased rents toward them have, and act on, an incentive to influence public policy. Ricardian EquivalenceIn public finance, Ricardo wrote that whether a government chooses to finance its expenditures through immediate taxation or through borrowing and deficit spending, the results for the economy will be equivalent. If taxpayers are rational, then they will account for any expected increase in future taxation to finance current deficits by saving an amount equivalent to current deficit spending, so the net change to total spending will be zero. So if a government engages in deficit spending to boost the economy, then private spending will just fall by an equivalent amount as people save more, and the net effect on the aggregate economy will be a wash. Published WorksIn his Essay on the Influence of a Low Price of Corn on the Profits of Stock (1815), Ricardo conceptualized the law of diminishing returns with respect to labor and capital. Ricardo wrote his first article on
economics, published in The Morning Chronicle, at the age of 37. The article advocated for the Bank of England to reduce its note-issuing activity. His 1815 book, Principles of Political Economy and Taxation, contains his most well-known ideas. What Did David Ricardo Argue in His Iron Law of Wages Theory?David Ricardo argued that attempts to increase or improve workers' wages were pointless because wages would, in time, return to or hover around the subsistence level. What Is the Economic Theory of David Ricardo?David Ricardo, although well known for his vast contributions to economics, is best known for developing the comparative advantage economic theory. Comparative advantage theorizes that, for international trade, countries most benefit from producing goods with low production opportunity costs. What Did David Ricardo Contribute to Economics?David Ricardo's contributions to economics are immeasurable, but he is highly regarded for his contributions to major theories like the law of diminishing returns, comparative advantage, theory of rents, and the labor theory of value. With the law of diminishing returns theory, Ricardo and other economists suggest that after an ideal point in production, adding an additional unit will result in smaller increases in output. Ricardo suggests, in the comparative advantage theory, that nations fare better when they focus on producing goods with the lowest production opportunity costs. The labor theory of value states that the value of a good is measured by the labor hours it took to produce it, not how much is paid for the labor. Ricardo is also widely known for the introduction of the concept of rents. In his theory of rents, he asserted that asset owners reap accrued benefits only because of their ownership rights. The Bottom LineDavid Ricardo was an 18th-century English economist renowned for his contributions to economic theory. He developed the comparative advantage theory, labor theory of value, and the theory of rents, which have founded other schools of thought and form the basis of current economic policies and decisions. Although best known for his work in economics, his influence also extended into the political arena, where he occupied a seat in Parliament. What is true of the relationship between trade and economic growth?The raw correlation between trade and growth
In a similar way, if we look at country-level data from the last half century we find that there is also a correlation between economic growth and trade: countries with higher rates of GDP growth also tend to have higher rates of growth in trade as a share of output.
How does trade affect economic growth?Expanding the production of America's most competitive industries and products, through exports, raises U.S. incomes. Shifting production to the most competitive areas of our economy helps raise the productivity of the average American worker and through that the income they earn.
What are the two main conclusions of the HeckscherThe Heckscher-Ohlin Theorem
The H-O theorem predicts the pattern of trade between countries based on the characteristics of the countries. The H-O theorem says that a capital-abundant country will export the capital-intensive good, while the labor-abundant country will export the labor-intensive good.
What does the HeckscherHeckscher-Ohlin theory, in economics, a theory of comparative advantage in international trade according to which countries in which capital is relatively plentiful and labour relatively scarce will tend to export capital-intensive products and import labour-intensive products, while countries in which labour is ...
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