International Trade

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 Armenia and Costa Rica. 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 (Armenia and Costa Rica) 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 analysis and the associated rationale.

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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 2001 to 2018.
You need to obtain the country-level data for Armenia and Costa Rica 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).
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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 three pages.

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III. REQUIRED TASKS
Your tasks involve two dimensions. Firstly, you need to analyse the data (see Steps 1 and 2 in the next section). Secondly, you need to perform a technical analysis by considering a hypothetical trading environment based on Ricardian model (see Step 3 in the next section).
Accordingly, you are required to:
 Provide information about how integrated these two countries (Armenia and Costa Rica) are with the rest of the world. To do so, you need to look at their trade flows relative to their GDP and calculate openness.
 Provide a visual representation of your findings by plotting a graph (use line graph) that shows the change in openness for these countries over the period between 2001 and 2018 (including all years, i.e., 2001, 2002, …, 2018).
 Conjecture what would have happened if these countries were not open to trade with the rest of the world by evaluating a hypothetical scenario based on a simple Ricardian model.

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IV. REQUIRED STEPS TO COMPLETE EACH TASK DATA ANALYSIS
For data analysis, you need to follow Steps 1 and 2 given below.
Step 1. Using trade flows in your data, calculate openness as a percentage for Armenia and Costa Rica and present them for each year for both countries as a table.
You need to explain your method, namely, how you calculated openness using trade flows (write down the formula). In addition, you need to state what other alternative ways you could have adopted to calculate openness other than using trade flows.
Step 2. Using your calculations for openness in Step 1, plot openness (as a percentage) against time (2001-2018) for both countries (Armenia and Costa Rica) in a single graph (as a chart type: you are required to use line graph). Put openness (as a percentage) on the vertical axis and time on the horizontal axis.
Using your figure (no external source, just what you see in your plot), explain and compare briefly how openness changes for these countries over time.
Make sure you limit your explanation to 300 words.
TECHNICAL ANALYSIS
For technical analysis, you need to follow Step 3.
Step 3. In order to conjecture the circumstances in these two countries under autarky (when there is no trade), consider the following hypothetical scenario based on Ricardian model. Assume throughout that those two countries (Armenia and Costa Rica) are the only two countries in the world, at least for purposes of trade. There are two goods: computers and headphones. Consumers in both countries always spend half of their income on computers and half of their income on headphones. The only factor of production is labour. Each
Armenian worker can produce 2 computers or 3 headphones per unit of time.
Each Costa Rican worker can produce 1 computer or 4 headphones per unit of time. There are 50 workers in Armenia and 50 workers in Costa Rica.

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a) Which country has an absolute advantage in computers? In headphones?
b) Which country has a comparative advantage in computers? In headphones?
c) Draw the production possibility frontier for each country and indicate slope (put computers on the vertical axis and headphones on the horizontal axis).
d) Find the autarky relative price of headphones in both countries (i.e., the price of headphones divided by the price of computers).
e) What is the optimal consumption and production for each country under autarky?
V. PRESENTATION OF RESULTS
You need to provide a brief in order to effectively communicate your findings. Your policy brief cannot exceed three pages. There will be a penalty imposed if you go beyond three pages. DO NOT attach Excel files to the brief.
In your brief, you must have the following ingredients:
 Headline: One possible example is: “A Simple Analysis of Openness for Armenia and Costa Rica: Part I”
 Data Analysis: In this section, you need to present your data analysis based on your findings in Steps 1 and 2.
 Technical Analysis: In this section, you need to communicate your technical results based on your findings in Step 3. For more information on International Trade check out : https://www.britannica.com/topic/international-trade

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