ECON2500/7036: International Trade and Investment Policy Assignment 2

This document presents a comprehensive solution to an International Trade and Investment Policy assignment. The solution begins by classifying various transactions as domestic investment, foreign portfolio investment, or foreign direct investment. It then analyzes indifference curves, determining their validity based on economic principles. The assignment further delves into production possibility frontiers (PPF) for Nigeria and Australia, exploring the impact of factors such as technological advancements and labor migration on the PPF. The solution includes graphical representations of these scenarios, illustrating how changes in productivity and workforce affect a country's production capabilities and, consequently, its balance of payments. The assignment also references relevant academic literature to support its analysis.

International Trade and Investment Policy 1
INTERNATIONAL TRADE AND INVESTMENT POLICY
Name
University
Unit
Unit code
City/State
Date

International Trade and Investment Policy 2
International Trade and Investment Policy
Q1
a) Foreign portfolio investment
b) Domestic investment
c) Foreign direct investment
d) Foreign portfolio investment
Q2
An indifference curve denotes the combination of goods that make a community/ economy or
individual consumer equally well off, i.e., they embody the combination of goods which offer a
similar level of usefulness to consumers. In our context,
a) Yes- the curve denotes the combination of y1 and y2 goods that can make an individual
or the community equally well off. The curve is also sloping from right (Lee, 2016).
b) No- indifference curves are convex to the origin and not just straight lines (Lee, 2016).
c) Yes- higher indifference curves characterizes a higher level of gratification than a lower
indifference curve (Kinley, 2016).
d) No-indifference curves never intersect (Kinley, 2016).
Q3
a) PPT represents all feasible combinations of efficient production units of final goods, given
the state of technology and the existing factors of production. In our case we have two goods,
that are being produced on an annually basis i.e. rice and cocoa. Nigeria total population is

International Trade and Investment Policy 3
130 million people. Thus, Marginal Product of Labour in Nigeria (MPL)- 1 ton of rice or 3
tons of cocoa per year
When all 130 million laborers are employed to produce rice and cocoa, home produces
𝐿×𝑀𝑃𝐿_𝑊=130×1=130 million tons of rice and 𝑊=130×3=390 millions of cocoa per
year.
The slope of Nigeria’s PPF is given by - (MPL of rice/ MPL of cocoa) = -1/3
On the other hand, the population inhabitants of Australia is 24 million people. When all 24
million laborers are employed to produce rice and cocoa, inhabitants of Australia produces
𝐿×𝑀𝑃𝐿_𝑊=24×4=96 million tons of both rice and cocoa per year.
The slope of Australia’s PPF is given by - (MPL of rice/ MPL of cocoa) = -4/4=-1
Thus, the possibility production frontiers for Nigeria and Australia can be represented in a
PPT as shown below.
i) Nigeria’s PPF in million tons per year
130
Rice
Cocoa
Slope of the cost of foregoing cocoa
product is -1/3

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ii) Australia’s PPF in million tons per year
b) If the Nigeria government starts a project to improve the productivity of the country say
by integrating the production of goods with the technology, the productivity of both
goods will increase shifting the PPT of Nigeria to the right depending on the rate of
change of MPL or the level of technological adoption in the production of each good.
390
96
96
Cocoa
Rice
Slope of the cost of foregoing cocoa
product is -1

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This is shown by the graph below
c) Nigeria’s PPF falls drastically from its previous position as more workers immigrates.
This implies that the Nigerian government is less with capacity to produce rice and
cocoa. This affects the balance of payments of Nigeria as its exports reduces drastically
due to reduced productivity.
130
390
Rice
Cocoa
New PPF after government
investment in technology/ increased
labour employment

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This can be summarized in the graph below.
130
390
Rice
Cocoa
New PPF after more and more workers
relocate to other countries. The productivity
shrinks and thus the PPF moves more and
closer to the origin

International Trade and Investment Policy 7
References List
Kinley, D. (2016). Public Policy in International Economic Law: The ICESCR in Trade,
Investment and Finance, written by Diane A. Desierto. The Journal of World Investment &
Trade, 17(5), pp.861-863.
Lee, J. (2016). A Study on the Tariff Policy under International Cooperation in R&D Investment
with Spillovers. Korea International Trade Research Institute, 12(2), pp.275-293.