Assume that you are an economic consultant hired by an internationalorganization/government to provide your expert advice on conditions pertaining tointernational trade in Argentina and El Salvador. Your analysis will consist of twoseparate 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. Thisinvolves utilizing your knowledge in international trade models as well asinspecting 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 willevaluate the trading conditions in these countries (Argentina and El Salvador) based onthe scenarios detailed in each question in this Assignment. Your analysis will form thebasis for a short report to the international organization/government body—summarising your recommendations and the associated rationale.II. DATA SOURCEFor your data analysis, you first need to obtain data from the World Bank (see the linkbelow) and follow the steps described below. Notice that World Bank regularly updatesits database; therefore it is crucial to obtain all data as soon as possible. The data rangeis from 1998 to 2014.You need to obtain the country-level data for Argentina and El Salvador 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 WorldDevelopment 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 adifferent browser (such as Internet Explorer)]Please DO NOT attach Excel files to the brief. The policy brief needs to be preciseand short. Avoid unnecessary jargon. Your policy brief cannot exceed two pages.International Trade Assignment 2, Semester 1, 2020 Page 2 III. REQUIRED TASKSYour tasks involve two dimensions. First, you need to analyse the data (see Steps 1, 2and 3 in the next section). Second, you also need to perform a technical analysis byconsidering a hypothetical trading environment based on Ricardian model (see Step 4 inthe next section).Accordingly, you are required to: Provide a visual representation of the relationship between openness andinequality by plotting a graph (use scatter plot) that shows the change in opennesswith respect to GINI index for these countries over the period between 1998 and2014 (including all years, i.e., 1998, 1999, …, 2014). Establish how being integrated with the rest of the world affected inequality inthese two countries by looking at the correlation between their openness andGINI index. State and explain whether your data findings are in line with theory (Assume bothArgentina and El Salvador are unskilled-labour abundant countries). Continue your technical analysis from your first report and state what would havehappened to these countries once they are allowed to trade with each other basedon our hypothetical scenario of Ricardian model.IV. REQUIRED STEPS TO COMPLETE EACH TASKDATA ANALYSISFor data analysis, you need to follow Steps 1, 2 and 3 given below.Step 1. Using data you obtained for Argentina and El Salvador, plot openness (as apercentage) against GINI index for each nation. Use two graphs, one for eachcountry (as a chart type: you are required to use scatter plot). You need touse your openness calculations from Step 1 of Assignment 1). Put openness (asa percentage) on the vertical axis and GINI index on the horizontal axis.Step 2. Using data you obtained for Argentina and El Salvador, calculate thecorrelation coefficient (using CORREL command in excel) between Opennessand the GINI Index for each nation.1Report and interpret this relationship inup to 200 words and state for which country this relationship is stronger. [Hint: 1The Gini index measures the area between the Lorenz curve and a hypothetical line of absolute equality, expressed as apercentage of the maximum area under the line. A Lorenz curve plots the cumulative percentages of total income receivedagainst the cumulative number of recipients, starting with the poorest individual. Thus a Gini index of 0 represents perfectequality, while an index of 100 implies perfect inequality. The Gini index provides a convenient summary measure of thedegree of inequality. International Trade Assignment 2, Semester 1, 2020 Page 3 the GINI is often used as a proxy for the ratio of skilled to unskilled wages inempirical studies].Step 3. Assume that both Argentina and El Salvador are unskilled-labour abundant.First define, Stolper-Samuelson theorem and then check whether your datafindings are in line with the Stolper-Samuelson theorem. Explain your answerup to 200 words.TECHNICAL ANALYSISFor technical analysis, you need to follow Step 4.Step 4. In order to conjecture the circumstances in these two countries under autarky(when there is no trade), consider the following hypothetical scenario based onRicardian model. Assume throughout that those two countries (Argentina andEl Salvador) are the only two countries in the world, at least for purposes oftrade. There are two goods: Hammers and Widgets. Consumers in bothcountries always spend half of their income on Hammers and half of theirincome on Widgets. The only factor of production is labour. Each Argentinianworker can produce 4 Hammers or 2 Widget per unit of time. Each ElSalvadoran worker can produce 2 Hammers or 2 Widgets per unit of time.There are 50 workers in Argentina and 75 workers in El Salvador. You need toprovide conditions in each country by stating:a) Derive the relative demand curve relating the relative demand for Widgetsto the relative price of Widgets. Do this algebraically, and then show whatthe curve looks like in a diagram (put the relative price of Widgets on thevertical axis and the relative quantity of Widgets demanded on thehorizontal axis).b) Derive the world relative supply curve of Widgets (put the relative price ofWidgets on the vertical axis and the relative quantity of Widgets suppliedon the horizontal axis).c) Put in the same figure the relative demand curve for Widgets that you foundin part (a) and the world relative supply curve of Widgets that you found inpart (b). Determine the equilibrium relative price of Widgets and theequilibrium relative quantity of Widgets under free trade.d) Under free trade, which country produces which good(s)? How manyunits?e) Who gains from trade? Who loses from trade? State workers’ stancetowards free trade in each country, i.e., do they support or oppose freetrade? International Trade Assignment 2, Semester 1, 2020 Page 4 V. PRESENTATION OF RESULTSYou need to provide a brief in order to effectively communicate your findings. In yourbrief, you must have the following ingredients: Headline: One possible example is: “A Simple Analysis of Openness forArgentina and El Salvador: Part II” Data Analysis: In this section, you need to present your data analysis based onyour findings in Steps 1, 2 and 3. Technical Analysis: In this section, you need to communicate your technicalresults based on your findings in Step 4.
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