Question

 

Use total 800 words to illustrate abc. Or just give me a general sense of direction.

(a) Why do some economists argue for dynamic comparative advantage? How does this concept relate to industrial policy? Use cases or examples to substantiate your discussion.

(b) Was the 1997 Asian Financial Crisis a result of government failure or market failure? Discuss.

(c) Why some people suggest that deglobalization will become major global trend after the coronavirus pandemic. Do you agree with this argument? Discuss.

Answer 1

These are some guiding points

Dynamic comparative advantage is based on David Ricardo’s comparative advantage according to which countries will specialize in the production of goods and services that it has a comparative advantage in and exchange it for what it has a comparative disadvantage In. This comparative advantage is not static it is dynamic in nature, i.e with time and evolution the comparative advantages of countries will change. Economists favour this concept since it forms the basis on which trade takes place. If the changing comparative advantage is not taken into account and policies not altered according to these changes, the country will not be able to gain out of the comparative advantage. Eg. currently USA does not have a comparative advantage in the production of calculators. Its advantage has moved towards producing software for various segments. The shift has gone from labour- and capital-intensive products to knowledge-based products or services. This is observed in developed economies. The policies will now have to shift towards supporting these industries so as to gain from the changing advantages.

The crises of 1997 were caused due to government failure. Government failure refers to a phenomenon where the governments intervein to develop the situation, however the actions end up making the economy worse off. There were several events that led to the crises they were basically industrial, monetary and financial actions that the government took. 2 events in particular are. The 1st event that began the issue is de pegging of the Thailand baht from the US Dollar. This simply meant that the currency value of Asian countries would fall along with international stocks and countries used the protectionist measure and bought the US treasuries. The next cause was the strategy of export led growth. The governments focused on supporting industries that had a higher demand in the international market. These industries were provided with support like subsidized rates, financial assistance and pegging to us currency so that exporters and exports could benefit out of the exchange rate. These led to a growth of the export industuries in Asia but the gicevny did not take into account the risks that came along.

With the globalized economy that has made the world a small village, the extent of the spread of the corona virus can be traced to the ease of movement of human and resources. Economies have spent huge reserves on boosting the economy. International trade has been expensive for most countries from the beginning. With deglobalization, countries will try to develop product that were previously imported. This will end up creating new industries which in turn will have more jobs in the economy. This will be an attempt to cater to the high unemployment rate and increase the disposable income with people. While this may increase income and jobs in the market, the price of the product may increase for consumers.

Absolute deglobalization may not take place since a number of countries are not endowed with all the resources that are needed to produce all sorts of goods and services that exists in the economy currently. Countries will depend on imports and exports to some extent; however, self-reliance will be observed in a number of economies.