INTERNATIONAL TRADE ASSIGNMENT

2
SEMESTER 1, 2019

I. INTRODUCTION
Assume that you are an economic consultant hired by an international
organization/government to provide your expert advice on conditions pertaining to
international trade in Italy and Sweden. Your analysis will consist of two separate
reports (one for Assignment 1 and the other for Assignment 2). As an expert, your job is
two-fold:
1. You are required to analyse any relevant issue using your technical skills. This
involves utilizing your knowledge in international trade models as well as
inspecting and interpreting data.
2. You need to communicate your results in an effective way.
The purpose of this exercise is to assess your aptitudes in each domain. You will
evaluate the trading conditions in these countries (Italy and Sweden) based on the
scenarios detailed in each question in this Assignment. Your analysis will form the basis
for a short report to the international organization/government body---summarising your
recommendations and the associated rationale.

II. DATA SOURCE

For your data analysis, you first need to obtain data from the World Bank (see the link
below) and follow the steps described below. Notice that World Bank regularly updates
its database; therefore it is crucial to obtain all data as soon as possible. The data range
is from 2003 to 2015.
You need to obtain the country-level data for Italy and Sweden on:
i. Imports of goods and services (in current US$)
ii. Exports of goods and services (in current US$)
iii. GDP (in current US$)
iv. GDP per capita (in current US$)
v. GINI Index (World Bank estimate) from the World Bank's World
Development Indicators:
(http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators).
[Note that if your browser (such as Chrome) does not open the web page; try a
different browser (such as Internet Explorer)]
Please DO NOT attach Excel files to the brief. The policy brief needs to be precise
and short. Avoid unnecessary jargon. Your policy brief cannot exceed two pages.

International Trade Assignment 2, Semester 2, 2019 Page 1

III. REQUIRED TASKS
Your tasks involve two dimensions. First, you need to analyse the data (see Steps 1, 2
and 3 in the next section). Second, you also need to perform a technical analysis by
considering a hypothetical trading environment based on Ricardian model (see Step 4 in
the next section).

Accordingly, you are required to:

 Provide a visual representation of the relationship between openness and

inequality by plotting a graph that shows the change in openness with respect to
GINI index for these countries over the time period between 2003 and 2015.
 Establish how being integrated with the rest of the world affected inequality in
these two countries by looking at the correlation between their openness and
GINI index.
 State and explain whether your data findings are in line with theory (Hint: Both
Italy and Sweden are skilled-labour abundant countries).
 Continue your technical analysis from your first report and state what would have
happened to these countries once they are allowed to trade with each other based
on our hypothetical scenario of Ricardian model.

IV. REQUIRED STEPS TO COMPLETE EACH TASK

DATA ANALYSIS
For data analysis, you need to follow Steps 1, 2 and 3 given below.
Step 1. Using data you obtained for Italy and Sweden, plot openness (as a percentage)
against GINI index for each nation. Use two graphs, one for each country. You
need to use your openness calculations from Step1 of Assignment 1). Put
openness (as a percentage) on the vertical axis and GINI index on the
horizontal axis.
Step 2. Using data you obtained for Italy and Sweden, calculate the correlation
coefficient (using CORREL command in excel) between Openness (as a
percentage) and the GINI Index for each nation. Report and interpret this
relationship in up to 200 words and state for which country this relationship is
stronger. [Hint: the GINI is often used as a proxy for the ratio of skilled to
unskilled wages in empirical studies].
Step 3. Assume that both Italy and Sweden are skilled-labour abundant. First define,
Stolper-Samuelson theorem and then check whether your data findings are in
line with the Stolper-Samuelson theorem. Explain your answer up to 200
words.

International Trade Assignment 2, Semester 2, 2019 Page 2

 TECHNICAL ANALYSIS
For technical analysis, you need to follow Step 4.
Step 4. In order to conjecture the circumstances in these two countries under free
trade, consider the following hypothetical scenario based on Ricardian model.
Assume throughout that those two countries (Italy and Sweden) are the only
two countries in the world, at least for purposes of trade. There are two goods:
shoes and calculators. Consumers in both countries always spend half of their
income on shoes and half of their income on calculators. The only factor of
production is labour. Each Italian worker can produce 1 shoe or 2 calculators
per unit of time. Each Swedish worker can produce 4 shoes or 2 calculators per
unit of time. There are 80 workers in Italy and 60 workers in Sweden. You
need to provide conditions in each country by stating:
a) Derive the relative demand curve relating the relative demand for
calculators to the relative price of calculators. Do this algebraically, and
then show what the curve looks like in a diagram (put the relative price of
calculators on the vertical axis and the relative quantity of calculators
demanded on the horizontal axis).
b) Derive the world relative supply curve of calculators (put the relative price
of calculators on the vertical axis and the relative quantity of calculators
supplied on the horizontal axis).
c) Put in the same figure the relative demand curve for calculators that you
found in part (a) and the world relative supply curve of calculators that you
found in part (b). Determine the equilibrium relative price of calculators
and the equilibrium relative quantity of calculators under free trade.
d) Under free trade, which country produces which good(s)? How many
units?
e) Who gains from trade? Who loses from trade? State labours’ stance towards
free trade in each country.

V. PRESENTATION OF RESULTS
You need to provide a brief in order to effectively communicate your findings. In your
brief, you must have the following ingredients:
 Headline: One possible example is: “A Simple Analysis of Openness for Italy
and Sweden: Part II ”
 Data Analysis: In this section, you need to present your data analysis based on
your findings in Steps 1, 2 and 3.
 Technical Analysis: In this section, you need to communicate your technical
results based on your findings in Step 4.
International Trade Assignment 2, Semester 2, 2019 Page 3