You have the following data for GDP per capita in 1990 and in 2023:

Brazil Argentina Mexico World
1990 $6,149 $8,225 $3,154 $6,803
2023 $9,258 $12,993 $13,790 $11,578

Based on this information, which country (or countries) do you expect to run a trade deficit in 1990?

Hint: Compute the average annual growth rate of GDP per capita between 1990 and 2023 for each country and the world economy to answer this question.

Question

You have the following data for GDP per capita in 1990 and in 2023:

Brazil	Argentina	Mexico	World
1990	$6,149	$8,225	$3,154	$6,803
2023	$9,258	$12,993	$13,790	$11,578

Based on this information, which country (or countries) do you expect to run a trade deficit in 1990?

Hint: Compute the average annual growth rate of GDP per capita between 1990 and 2023 for each country and the world economy to answer this question.

BlackTom AI · Accepted Answer

To approach this question, we first restate the scenario and the options clearly, then evaluate each country in light of the growth information provided.

Option 1: Brazil
- 1990 GDP per capita: $6,149; 2023 GDP per capita: $9,258. This implies a modest growth over the period. 
- Rough calculation of average annual growth rate (CAGR) from 1990 to 2023: (9,258 / 6,149)^(1/33) − 1 ≈ (1.506)^(1/33) − 1 ≈ 1.25% per year. 
- Since Brazil’s growth rate is only about 1–1.5% per year and well below the global average, this slower domestic expansion would not be the strongest signal of a rapidly expanding import base relative to exports. If anything, slower growth could correspond to a less pronounced current account deficit driven by import demand. Therefore, Brazil is not the most likely candidate for a 1990 trade deficit based on high growth dynamics.

Option 2: Argentina
- 1990 GDP per capita: $8,225; 2023 GDP per capita: $12,993. This also shows growth, but the magnitude is smaller than Mexico’s quick post-1990 expansion. 
- CAGR approx: (12,993 / 8,225)^(1/33) − 1 ≈ (1.581)^(1/33) − 1 ≈ 1.4% per year. 
- This growth rate is modest relative to Mexico’s, suggesting a less aggressive expansion in the import-demand side relative to exports. While a trade deficit could exist for various reasons, the data pattern here does not point to the strongest current-account-improving growth that would predict a large deficit in 1990.

Option 3: Mexico
- 1990 GDP per capita: $3,154; 2023 GDP per capita: $13,790. This is a substantial rise, indicating a much faster growth trajectory. 
- CAGR approx: (13,790 / 3,154)^(1/33) − 1 ≈ (4.37)^(1/33) − 1 ≈ 4.6% per year. 
- This growth is markedly higher than the world average (and substantially higher than Brazil or Argentina’s growth rates), which typically correlates with a rapidly expanding import base as the economy industrializes and integrates with global trade. In many macro patterns, faster growth driven by investment and import-intensive sectors tends to be associated with larger trade deficits in the near term, especially if export growth does not keep pace. Hence, Mexico’s rapid growth makes it the most plausible candidate for a trade deficit in 1990 among the options provided.

Comparative takeaway
- The key criterion given is to compute and compare average annual growth rates 1990–2023. Among the three countries, Mexico shows the strongest growth (roughly 4.6% per year), well above world growth and the other two countries. This pattern aligns with the typical association between rapid growth and higher import demand, raising the likelihood of a trade deficit in 1990 relative to the others.
- Brazil and Argentina exhibit more modest growth rates, suggesting their trade balances in 1990 would be less prone to large deficits driven by growth-fueled imports, compared with Mexico.

Summary view based on growth calculations
- Brazil: ~1.25% annual growth; less indicative of a large 1990 trade deficit signal.
- Argentina: ~1.4% annual growth; still modest, not the strongest deficit predictor.
- Mexico: ~4.6% annual growth; strongest indicator among the three for a trade deficit in 1990 given the growth pattern relative to the world.

FA25 ECON 302 002 Homework #11 (International Trade)

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