Why is it that North-South trade in manufactures seems to be ...

[Ebrown]

Why is it that North-South trade in manufactures seems to be consistent with the results or expectations generated by the factor-proportions theory of international trade, whereas North-North trade is not?
 
  What will be an ideal response?

Question 2

The current account surplus is
 
  A) an increasing function of disposable income and an increasing function of the real exchange rate.
  B) a decreasing function of disposable income and a decreasing function of the real exchange rate.
  C) a decreasing function of disposable income and an increasing function of the real exchange rate.
  D) only a decreasing function of disposable income.
  E) only an increasing function of the real exchange rate.

[fur]

Answer to Question 1

There is a clear difference in relative factor availabilities between North and South countries, no matter how we define and measure the factors of production. Hence, the factor-proportions theory of trade may be sensibly expected to explain the pattern (though not the volume) of trade between these two groups of countries. However, the North North trade partners do not vary significantly in their relative factor availabilities, so that other forces, such as scale economies play a relatively large role in determining trade patterns.

Answer to Question 2

C