1. In the first class we saw that a number of foreign aerospace firms (led by...

1. In the first class we saw that a number of foreign aerospace firms (led by Bombardier of Canada) are producing and exporting aerospace products, including small airplanes and helicopters, from the state of Querétaro in Mexico.

a. Why is this surprising? Would traditional theories of trade such as absolute or comparative advantage lead you to expect Mexico to be exporting aerospace products such as airplanes or helicopters? Why or why not?

b. What factors or causes could explain why this is happening? Name at least three (3) explanatory factors or reasons.

Solutions

Expert Solution

Answer A. This is surprising because for mexico to produce such high-end technological gadgets is not expected considering their economy and their human resource in rference to knowledge and innovation.

Considering Ttaditional theories of trade such as comparative and absolute advantage it is possible that mexico can produce and export aerospace proucts. Since there are two important point in this.

Firstly we consider they are efficient in proucing aerospace products. So going by absolute trade theory when they are efficient at producing qulity products, it is imminent that they produe more of it to an extent that they export the products.

Secondly when we consider the second factor, the comparative trade theory it says countries should import if the country is more efficient in the prouction of the product from the country thay are buying from. This is because efficient utiisaiton of resources leads to more productivity and defiitely there is cost involved. Besides the cost of producin the same products at home is comparatively higheer as such it is preferred to imporrt those products from Country like mexico.

Answer B. Three important reasons on why this is happening:

1) Cost - Cost is definitey one factor owing to which we see that Mexico is preferred detination to impport aerospace products. The cost of producing one unit of the product would be much lessser in mexico than in the home country.

2) Improves the bilateral trade relationship between countries.

3) Import from aerospace products from Mexico, gives an opportunity to make optimum utilization of available resources in researchnand development in creating more innovative and disrupting technologies.

Rahul Sunny answered 1 year ago

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