Assignment Task: Assignment 1
Please use diagrams wherever appropriate in your answers.
- Explain with the help of a graphical analysis (MD-MS diagram) how a reduction of frictional barriers (i.e. technical barriers to trade), such as health and safety regulations or technical standards, impacts on the welfare of trading countries. Outline the circumstances under which frictional barriers between members of the European Union may be still preferred despite their obvious shortcomings and support your arguments with a recent example.
500 words; 25 marks
- What are the costs and benefits of an Optimum Currency Area (OCA)? Did Greece’s entry to the European Monetary Union (EMU) weaken its integrity?
500 words; 25 marks
- Utilising the World Bank Database (data.worldbank.org) find cross-country data on indicators for openness (trade as a percentage of GDP) and average GDP growth for the last 25 years. (Hint: You have to calculate the annual growth rate first)
- i) Using an Excel or GRETL find the simple correlation between these two variables. Are the results showing what you expected? Describe the economic theory that supports your considerations. (400 words)
- ii) What does the empirical (peer-reviewed) literature say about the effects of openness on long-term growth? Is the evidence in the literature contradictive? (300 words)
iii) Can the European Union be considered as relatively open towards others? Conclude with a policy recommendation. (300 words)
1000 words; 50 marks
Total marks for assignment: 100
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