How the country built the fastest-growing economy among developing nations
The continent of Africa has yielded little economic growth in the past half-century. Of the 54 countries within the continent, only have a handful have avoided economic stagnation. Out of that handful, an even smaller number of countries have enjoyed actual economic development.
That is not to say that economic growth has been wholly absent from the continent, of course. Botswana, a landlocked nation that sits to the north of South Africa, has somehow achieved unparalleled economic growth over the past 50 years. …
Explaining the two-factor model
The Heckscher-Ohlin model was developed by the Swedish economists Eli Heckscher and Bertil Ohlin to study how comparative advantage is influenced by the relative abundance of factors within a country. While the Ricardian model of trade accounts for labor as the only factor of production, the Heckscher-Ohlin model accounts for the proportions in which different factors of production are available in different countries.
Because this model examines the proportions of different production factors, it is sometimes referred to as the factor-proportions theory.
The most basic version of the factor-proportions theory is the two-factor model, which studies trade between two countries…
Explaining a trade model based on country location and size
The gravity model, initially made popular by the cartographer E.G. Ravenstein in 1889, was originated to study the impact of country size and location on migration patterns.
In 1954, economists Walter Isard and Merton Peck expanded the gravity model to examine the impact of country size and location on international trade. The work of Isard and Peck was later incorporated into a model by the Dutch economist Jan Tinbergen in 1962.
Tinbergen’s model builds upon two primary assumptions. The first assumption is that larger countries will attract more trade, just as a Newton’s law of gravity states that an object…
Explaining one of the oldest models of comparative advantage
In recent articles, I discussed both the benefits of trade and the concept of comparative advantage. As we know, a country has a comparative advantage in producing a good if the opportunity cost of producing that good is lower in that specific country than it is in other countries. We also know that trade between two countries can benefit both countries if each country exports the goods that they have a comparative advantage in.
Although it is easy to understand how the concept of comparative advantage might work, it is more difficult to understand just why comparative advantage shapes international…
Economics can be a difficult subject to learn, so it’s no surprise that many students are intimidated by economics classes in high school and college. But at it’s core, economics is the study of how humans interact with value. Economics studies what people value and how their values influence their actions.
To really break down economics, it’s important to look at the underlying principles that are foundational to the field. This list is adapted from “Modern Principles of Economics” by Tyler Cowen and Alex Tabarrok.
1. Incentives Matter
The first economic principle is that incentives matter. …
Explaining the distinction between both terms
Economists often focus on the externalities that occur between individuals. Externalities can be thought of as a cost or benefit that is imposed on a party without the party agreeing to incur that cost or benefit.
Two common externalities that we see in the real world are trespasses and nuisances. We’re all familiar with those terms — after all, it’s not difficult to find private property that is marked with “No Trespassing” signs. But what exactly is the difference between a trespass and a nuisance?
A trespass is defined as a physical invasion of another individual’s land. This standard is…
Explaining the theory of comparative advantage
Why do we trade?
You might not always think about it this way, but you’re trading all the time. You trade with the owner of the gas station by exchanging money for the fuel you put into your car. You trade with the grocer when you buy food each week. You trade with your landlord when you lease your apartment each month. In a broader, institutionalized sense, we trade with the government by paying taxes to enjoy public benefits (government defense, social security, and infrastructure).
We’re always trading, but why do we do it? Aren’t there alternatives to trade? Couldn’t…
Explaining when and why your rights may be limited
I recently explained the importance of private property rights, describing how rights can lead to an increase in investment and economic growth. But now let’s take a look at another question: are property rights absolute?
In other words, can your property rights ever be limited?
The simple answer is that yes, your property rights can be limited.
As we learned earlier, the broad bundle of property rights includes a few simple rights. …
Explaining why it’s essential to economic growth
Why do we need private property laws? Couldn’t we all just share property together?
No, not really. As Daniel Cole and Peter Grossman write in “Principles of Law and Economics,” productive capital is the result of both “economically valuable assets and the sociolegal fact of functional and secure property systems to govern those assets.”
The authors quote the Peruvian economist Hernando de Soto, who wrote that property rights are a “staircase” that allows countries to move “from the university of assets in their natural state to the conceptual universe of capital where assets can be viewed in their full productive…
A lesson in successful marketing and restoring consumer trust
Since its inception in 1993, Chipotle has grown to become one of the most popular fast-casual restaurants, successfully balancing the convenience of fast food with the quality of a casual, sit-down restaurant. Chipotle’s growth hasn’t been easy, though — over three years between 2015 and 2018, the company faced reports that consumers were contracting E. coli and norovirus after eating Chipotle. These scandals tainted the company’s reputation for a brief period, but the restaurant was able to restore consumer trust and continue growing.
What is Chipotle’s secret? Yes, good food attracts consumers, but most companies wouldn’t be able to survive…
