We have seen in the lecture that while China was scarce in capital in 2000, since 2010, China is abundant in capital. The reason for this is that the Chinese economy has accumulated capital, i.e., it invested in its capital stock. We are interested in illustrating this capital accumulation and learn its effects on China's trade pattern. For the sake of this exercise, we think of China as a country endowed with two factors of production, labor and capital, producing two goods, labor-intensive toys and capital-intensive smartphones.

Questions:

(a) Illustrate the PPF of China in the year 2000, when it was a capital-scarce country, and today, when it is a capital-abundant country. We assume that the amount of labor has

not changed throughout this period.

(b) What do you predict has happened to China's comparative advantage? Which good does China export in 2000, and today, according to your model? Explain (no graph needed).

(c) Is your prediction borne out by the data? Present evidence providing appropriate references. Why, or why not?