What will happen to agriculture share of gdp in the long run

Reference no: EM133341713

Question: Suppose a small economy consists of an agricultural good Y and a non-agricultural good X. Assume also that productivity growth over time is the same in tooth sectors

i) Show that when this economy is closed to trade, agriculture's terms of trade will decline overtime. What will happen to agriculture's share of GDP in the long run? Explain the important economic law that drives this result?

(ii) If the economy is open to trade and it has a comparative advantage in agriculture and productivity growth occurs elsewhere in the world. will agriculture's terms of trade stili decline over time?

(iii) In the post-war period. does the empirical evidence support this theory for all devetoped economies? It not. why not? Given developed countries often used export subsidies over this period. what would the impact have been on domestic vs. world commodity prices?

(iv) Over the past decade, some developing countries have used export taxes and other export policies to influence the domestic price of commodities such as rice and wheat given high world food prices. Using the appropriate diagram, show why such a policy may ultimately be self-defeating

Reference no: EM133341713

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