User talk:Alexkyoung

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Sandbox / Neomercantilism[change source]

Neomercantilism is a government policy that supports more exports, less imports, and more control over investment (capital movement). Also, the government has the power to make decisions involving money (currency).[1] The goal is to increase foreign reserves, which gives the government more power over money.

Origin[change source]

The idea comes from Keynesian economics. According to UNESCO, mercantilism is the belief that the state's wealth must be protected by the government. This makes the state's money a nationalistic concern.[2]

Citations[change source]

Sandbox / Competitive advantage[change source]

In economics a competitive advantage is something that allows someone to beat their rivals. This includes:

  1. Low cost: I have better resources. I can make things at a lower cost. I sell things at a lower price than others.
  2. Differentiation: The product I create is different, better, or both.
  3. Focus: The product I create is targeted to a specific person.

Comparative advantage[change source]

For example, during the Industrial Revolution, England and Portugal both made wine and cloth.

Hours of work necessary to produce one unit
Template:Diagonal split header Cloth Wine
England 100 120
Portugal 90 80

Suppose the number shows the number of hours required to create one piece of cloth or one crate of wine. In 100 hours, England can either make 1 unit of cloth or 5/6 units of wine. Meanwhile in 90 hours Portugal can make 1 unit of cloth and 9/8 units of wine. Portugal has an absolute advantage in both. However England's opportunity cost of 5/6 is lower than Portugal's OC 9/8. Hence England has a comparative advantage in cloth-making.

David Ricardo predicted that Portugal would stop making cloths and England would stop making wine. That did happen.[3]

David's theory also says that trade protectionism (raising tariffs or blocking trade from other countries) does not work in the long run.[4]

Middle income trap[change source]

In economics the middle income trap happens when a country's GDP is stuck at some level and cannot increase.[5]

The World Bank says that South Africa and Brazil have fell into the trap.[5][6]

Economists think this happens because as a country sells more and gets richer, it pays higher wages. This increases the cost of selling stuff. So the countries lose their competitive advantage and get stuck, unable to sell more and get richer.

The World Bank says a country is in the 'middle-income range' if its gross national product per person stays between $1,000 to $12,000 (in 2011 prices).[5]

I don't want to fall into the trap[change source]

To avoid the trap, a country could find better ways to make goods and reduce the cost of making them. They could also find new people or countries to sell their goods to.

An increasing middle class could also use their money to buy fancy stuff that helps further promote growth: this includes better education, better technology and infrastructure, studying science and technology to create more innovations.[7][8]

  1. Guerrieri, Paolo; Padoan, Pier Carlo (1986). "Neomercantilism and International Economic Stability". International Organization 40 (1): 29–42. ISSN 0020-8183. 
  2. Hettne, Björn (1993). Magnusson, Lars (ed.). Mercantilist Economics. Recent Economic Thought Series. Dordrecht: Springer Netherlands. pp. 235–255. doi:10.1007/978-94-011-1408-0_10. ISBN 9789401114080.
  3. Amadeo, Kimberly. "Understanding Comparative Advantage". The Balance. Retrieved 2019-07-18.
  4. Amadeo, Kimberly. "Understanding Comparative Advantage". The Balance. Retrieved 2019-07-18.
  5. 5.0 5.1 5.2 Graphic detail Charts, maps and infographics (2011-12-22). "Asias Middle Income Trap". Retrieved 2014-08-11.
  6. "Indonesia risks falling into the Middle Income trap". 2012-03-27. Archived from the original on 2014-07-30. Retrieved 2014-08-11.
  7. "Seminar on Asia 2050". 2011-10-18. Retrieved 2014-08-11.
  8. "Asia 2050: Realizing the Asian Century". 2013-05-09. Retrieved 2014-08-11.