Describe the nature of trade between two countries based on intertemporal comparative advantage
What will be an ideal response?
Intertemporal comparative advantage arises when a country can produce goods for future consumption at a relatively low cost in terms of current consumption when compared with its trading partner. This implies that the first country offers a relatively high return on investment when compared to the second. As a result, the first country will import goods for current consumption (investments or loans) and will export goods for future consumption (return on investment or interest). The resulting pattern of trade is one which will tend to equalize returns on investment in the two countries.
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Which of the following is NOT a proposition of the Heckscher-Ohlin model?
A) A country has a comparative advantage in the production of that commodity which uses more intensively the country's more abundant resource. B) The effect of international trade is to tend to equalize factor prices between the trading nations. C) If Mexico is an unskilled labor abundant country, then Mexico has a comparative advantage in the production of goods that use unskilled labor more intensively. D) If the United States is a skilled labor abundant country, then the United States has a comparative advantage in the production of goods that use skilled labor more intensively. E) Countries will completely specialize in the product in which they have a comparative advantage if free trade is allowed to occur.
Suppose that Japan and India are both engaged in the production of radios and rice, and that Japan has an absolute advantage in the production of both goods. If India has a lower opportunity cost for producing rice, then
A. India has a comparative advantage in the production of rice, but it is outweighed by Japan's absolute advantage in rice production. B. India has a comparative advantage in rice production, but there will be no gains from specialization and trade. C. Japan has a comparative advantage in the production of both goods. D. India has a comparative advantage in the production of rice, and specialization and trade between the two countries can be mutually beneficial.