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Trade Patterns in Canada, Australia, and Latin America

1) Canada trades more relative to its GDP than Australia due to Canada having stronger trade connections as it shares a border with the US while Australia is more isolated as an island nation. 2) Mexico trades mainly with the US due to sharing a border, while Brazil trades equally with the US and EU as it does not share borders. Following the gravity model, Mexico has stronger trade relationships due to being closer to its main trading partner, the US. 3) If all countries' GDPs doubled, world trade would not quadruple as the gravity model states trade is proportional to GDP, so trade would increase equally to the increase in global GDP. 4) Intra-East Asian trade has grown as East Asian

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7 views1 page

Trade Patterns in Canada, Australia, and Latin America

1) Canada trades more relative to its GDP than Australia due to Canada having stronger trade connections as it shares a border with the US while Australia is more isolated as an island nation. 2) Mexico trades mainly with the US due to sharing a border, while Brazil trades equally with the US and EU as it does not share borders. Following the gravity model, Mexico has stronger trade relationships due to being closer to its main trading partner, the US. 3) If all countries' GDPs doubled, world trade would not quadruple as the gravity model states trade is proportional to GDP, so trade would increase equally to the increase in global GDP. 4) Intra-East Asian trade has grown as East Asian

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Héctor P
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International economy: problem set 1

Canada and Australia are (mainly) English-speaking countries with populations


that are not too different in size. But Canadian trade is twice as large, relative to
GDP, as Australia’s. Why should be this case?
The main reason of this situation happening may be because of their connection as
countries: Australia is an island where trade connections are not as developed and
easy as in the rest of territories (it is isolated), and, on the other hand, Canada, has a
powerful territory with links in terms of trade with its boundaries like the United States.
Taking into account tis information this information it is normal to say that the share of
trade in Australian GDP is shorter than the one in Canada.

Mexico and Brazil have very different trading patterns. While Mexico trades maily
with the US, Brazil trades about equally with the US and with the EU. In addition,
Mexico does much more trade relative to its GDP. Explain these differences
using the gravity model.
As in the last question, México is a country that shares borders with the US and the
gravity model explains that the closer that two countries are situated, the most likely for
them to stablish trade relations. On the other hand, brazil does not share frontiers with
neither the US nor the EU even if it trades with both of them. Following the gravity
model it could be asserted that Mexico maintains strongest relationships of trade
because is closer than Brazil to its main trader.

Equation (2.1) says that trade between any two countries is proportional to the
product of their GDPs. Does this mean that if the GDP of every country in the
world doubled, world trade would quadruple?
The gravity model equation states that trade between any two countries is proportional
to the product of their GDPs. Taking into consideration that information, the increase in
world’s trade should be equal to the increase of world’s GDP; and thus, it could not be
quadruple.

Over the past few decades, East Asian economies have increased their share of
world GDP. Similarly, intra–East Asian trade—that is, trade among East Asian
nations—has grown as a share of world trade. More than that, East Asian
countries do an increasing share of their trade with each other. Explain why,
using the gravity model.
This case may have happened because being East Asian countries very closed to
each other, the distance in the formula T= A x Y x Y / D is not that important as if the
trade occurred between two far countries (in this case the resultant trade following the
gravity model would be lower). Moreover, East and South Asian countries are part of
the ASEAN, an association with low tariffs to trade between those regions of the world,
facilitating in this way the whole process.

Solutions:
1. Canada ad south korea

Héctor Plaza Pedrera International Studies + Business. Group 59.

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