The paper “ Economics of International Trade - Effects of Increase in Capital” is a thoughtful example of the case study on macro & microeconomics. An economy may have different levels of abundance when it comes to factors of production. For example, a country may have abundant manpower but little capital to make investments that will create jobs for the population. According to Heckscher and Ohlin, a country should export those factors that it has in abundance and import those that are not easily available within the economy. According to (Samuelson (2001) large trading country takes place in international trade with other economies and therefore there is almost an equal rate of export and import (Ashok & Jaffee 2004, p.
81). An increase in the capital within such a country given that it already has capital as an abundant factor of production will not only have an impact on production but also other factors of production (McKenzie 1954, p. 166). The increase in the supply of capital will lead to an increase in the rate of importation of other factors of production such as labor.
This will come as a result of increased investment both at the domestic and international levels hence the need for other factors of production to improve productivity. The increase in capital will also lead to increased taxation by the government (Ashok & Jaffee 2004, p. 81). The increase in capital will also increase the scarcity of labor as a factor of production since the high capital gives room for increased investment (McKenzie 1954, p. 166). Economic growth wholly depends on two factors, the productivity, and quantity of inputs. Such factors include capital and labor.
There are several ways in which a country can increase its capital; this can be done by reducing the amount of tax charged on capital gains. There are other ways in which an economy can increase its amount of capital. An increase in the capital may have several effects on the economy including labor and standards and living. Economic growth cannot take place unless the productivity or quantity of production factors increases (McKenzie 1954, p. 166).
Ashok, B. & Jaffee, D. 2004, “On Intra-Firm Trade and Multinationals: Foreign Outsourcing and Offshoring in Manufacturing” in Monty Graham and Robert Solow (eds.)
McKenzie, W. (1954). "Specialization and Efficiency in World Production". The Review of Economic Studies 21 (3): 165–180.
Matsuyama, K. 2000 A Ricardian Model with a Continuum of Goods under Nonhomothetic Preferences: Demand Complementarities, Income Distribution, and North-South Trade, Journal of Political Economy, 108(6): 1093-1120.
Shiozawa, Y. 2007 A New Construction of Ricardian Trade Theory—A Many-country, Many-commodity Case with Intermediate Goods and Choice of Production Techniques—, Evolutionary and Institutional Economics Review 3(2): 141-187.
Shiozawa, Y. 2009, Samuelson's Implicit Criticism against Sraffa and the Sraffians and Two Other Questions, The Kyoto Economic Review, 78(1): 19-37.
Samuelson, P.2001. "A Ricardo-Sraffa Paradigm Comparing the Gains from Trade in Inputs and Finished Goods". Journal of Economic Literature 39 (4): 1204–1214.
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