19ECC031 International Trade
Generic Feedback on January 2020 Exam
By and large, students did a good job at connecting the exam questions to relevant
module material. Really good or excellent answers tended to be distinguished from
OK/good ones by a greater focus on addressing the specific question set (as
opposed, for example, to providing a general overview of a relevant economic
model).
Questions 1 to 4 were by far the most popular on the paper, so I will concentrate my
specific comments on them. While there were some impressive answers, I will focus
here for brevity on common problems:
Q1(b) is essentially asking for examples of external determinants of a
country’s terms of trade (e.g. the strength of global demand for the country’s
export good). However, a few candidates overlooked the presence of
“elsewhere” in the question and discussed instead phenomena like
productivity growth within the country itself.
The Factor Price Equalisation (FPE) Theorem is central to the HOS part of
Q2. As with other questions, the best answers went beyond just stating the
relevant result/theorem and tried to: (i) explain why the result holds (e.g. using
the Lerner Diagram); and (ii) give some intuition for the result (e.g. by
discussing how the FPE and Rybczynski Theorems “work together” to explain
how countries differ in equilibrium in the HOS model).
For Q3, most candidates cited the Kaldor-Hicks test as a means of assessing
changes in “overall welfare” (or potential Pareto improvements), but few
candidates went on to describe exactly what the KH test says about the
welfare effects of trade liberalisation in the HOS model.
Questions 5 and 6 were less popular. Here, the most noteworthy feature of answers
was that candidates struggled to explain the relevance of “excessive aggregation” in
Q5(b). It refers, for example, to a scenario like the following. Assume that the UK
possesses a comparative advantage in good 1 and that Germany possesses a CA in
good 2. Moreover, assume that countries export their CA goods, in line with
traditional models of international trade under perfect competition. If consumers don’t
view goods 1 and 2 as particularly close substitutes (so there is no reason to include
them in the same “industry” on the basis that producers of 1 compete with producers
of 2 for consumers), then applied researchers will incorrectly detect intra-industry
trade in the data if they define goods 1 and 2 as being produced in the same
“industry”.
Ben Ferrett
February 2020
Generic Feedback on January 2020 Exam
By and large, students did a good job at connecting the exam questions to relevant
module material. Really good or excellent answers tended to be distinguished from
OK/good ones by a greater focus on addressing the specific question set (as
opposed, for example, to providing a general overview of a relevant economic
model).
Questions 1 to 4 were by far the most popular on the paper, so I will concentrate my
specific comments on them. While there were some impressive answers, I will focus
here for brevity on common problems:
Q1(b) is essentially asking for examples of external determinants of a
country’s terms of trade (e.g. the strength of global demand for the country’s
export good). However, a few candidates overlooked the presence of
“elsewhere” in the question and discussed instead phenomena like
productivity growth within the country itself.
The Factor Price Equalisation (FPE) Theorem is central to the HOS part of
Q2. As with other questions, the best answers went beyond just stating the
relevant result/theorem and tried to: (i) explain why the result holds (e.g. using
the Lerner Diagram); and (ii) give some intuition for the result (e.g. by
discussing how the FPE and Rybczynski Theorems “work together” to explain
how countries differ in equilibrium in the HOS model).
For Q3, most candidates cited the Kaldor-Hicks test as a means of assessing
changes in “overall welfare” (or potential Pareto improvements), but few
candidates went on to describe exactly what the KH test says about the
welfare effects of trade liberalisation in the HOS model.
Questions 5 and 6 were less popular. Here, the most noteworthy feature of answers
was that candidates struggled to explain the relevance of “excessive aggregation” in
Q5(b). It refers, for example, to a scenario like the following. Assume that the UK
possesses a comparative advantage in good 1 and that Germany possesses a CA in
good 2. Moreover, assume that countries export their CA goods, in line with
traditional models of international trade under perfect competition. If consumers don’t
view goods 1 and 2 as particularly close substitutes (so there is no reason to include
them in the same “industry” on the basis that producers of 1 compete with producers
of 2 for consumers), then applied researchers will incorrectly detect intra-industry
trade in the data if they define goods 1 and 2 as being produced in the same
“industry”.
Ben Ferrett
February 2020
