Scribd Logo
Upload

Welcome to Scribd!

  • 34 views

    International Trade Theories 1. Mercantilism

    Uploaded by

    Ashab Hashmi
    The document summarizes several theories of international trade: 1) Mercantilism advocates for trade surpluses and government intervention to achieve them, viewing trade as zero-sum. 2) Absolute advantage theory argues countries should specialize in what they produce most efficiently and trade for other goods. 3) Comparative advantage theory suggests countries can gain by trading goods they produce relatively more efficiently for those produced relatively less efficiently elsewhere. 4) Heckscher-Ohlin theory claims comparative advantage arises from differences in factors like resources, predicting trade of goods intensive in locally abundant factors.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    International Trade Theories 1. Mercantilism

    Uploaded by

    Ashab Hashmi
    34 views3 pages
    The document summarizes several theories of international trade: 1) Mercantilism advocates for trade surpluses and government intervention to achieve them, viewing trade as zero-sum. 2) Absolute advantage theory argues countries should specialize in what they produce most efficiently and trade for other goods. 3) Comparative advantage theory suggests countries can gain by trading goods they produce relatively more efficiently for those produced relatively less efficiently elsewhere. 4) Heckscher-Ohlin theory claims comparative advantage arises from differences in factors like resources, predicting trade of goods intensive in locally abundant factors.

    Original Description:

    Trade theories

    Original Title

    Trade Theories

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document summarizes several theories of international trade: 1) Mercantilism advocates for trade surpluses and government intervention to achieve them, viewing trade as zero-sum. 2) Absolute advantage theory argues countries should specialize in what they produce most efficiently and trade for other goods. 3) Comparative advantage theory suggests countries can gain by trading goods they produce relatively more efficiently for those produced relatively less efficiently elsewhere. 4) Heckscher-Ohlin theory claims comparative advantage arises from differences in factors like resources, predicting trade of goods intensive in locally abundant factors.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    34 views3 pages

    International Trade Theories 1. Mercantilism

    Uploaded by

    Ashab Hashmi
    The document summarizes several theories of international trade: 1) Mercantilism advocates for trade surpluses and government intervention to achieve them, viewing trade as zero-sum. 2) Absolute advantage theory argues countries should specialize in what they produce most efficiently and trade for other goods. 3) Comparative advantage theory suggests countries can gain by trading goods they produce relatively more efficiently for those produced relatively less efficiently elsewhere. 4) Heckscher-Ohlin theory claims comparative advantage arises from differences in factors like resources, predicting trade of goods intensive in locally abundant factors.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    International Trade Theories

    1. Mercantilism:

    Mercantilism suggests that it is in a countrys best interest to maintain a trade surplus -to export
    more than it imports. It advocates government intervention to achieve a surplus in the balance of
    trade. Mercantilism views trade as a zero-sum game - one in which a gain by one country results
    in a loss by another.

    2. Absolute advantage:

    Adam Smith argued that a country has an absolute advantage in the production of a product
    when it is more efficient than any other country in producing it. Countries should specialize in
    the production of goods for which they have an absolute advantage and then trade these goods
    for the goods produced by other countries

    3. Comparative advantage:

    David Ricardo asked what might happen when one country has an absolute advantage in the
    production of all goods. Ricardos theory of comparative advantage suggests that countries
    should specialize in the production of those goods they produce most efficiently and buy goods
    that they produce less efficiently from other countries, even if this means buying goods from
    other countries that they could produce more efficiently at home.

    4. Heckscher-Ohlin Theory:

    Eli Heckscher and Bertil Ohlin - comparative advantage arises from differences in national
    factor endowments the extent to which a country is endowed with resources like land, labor,
    and capital. It predict that countries will export goods that make intensive use of those factors
    that are locally abundant, and import goods that make intensive use of factors that are locally
    scarce

    5. The product life-cycle theory - (Raymond Vernon):

    As products mature both the location of sales and the optimal production location will change
    affecting the flow and direction of trade

    the size and wealth of the U.S. market gave U.S. firms a strong incentive to
    develop new products

    initially, the product would be produced and sold in the U.S.

    as demand grew in other developed countries, U.S. firms would begin to export
    demand for the new product would grow in other advanced countries over time
    making it worthwhile for foreign producers to begin producing for their home
    markets

    6. New trade theory:

    New trade theory suggests that the ability of firms to gain economies of scale (unit cost
    reductions associated with a large scale of output) can have important implications for
    international trade

    1. Through its impact on economies of scale, trade can increase the variety of goods
    available to consumers and decrease the average cost of those goods

    without trade, nations might not be able to produce those products where
    economies of scale are important

    with trade, markets are large enough to support the production necessary to
    achieve economies of scale

    so, trade is mutually beneficial because it allows for the specialization of


    production, the realization of scale economies, and the production of a greater
    variety of products at lower prices

    2. In those industries when output required to attain economies of scale represents a


    significant proportion of total world demand, the global market may only be able to
    support a small number of enterprises

    first mover advantages - the economic and strategic advantages that accrue to
    early entrants into an industry

    economies of scale

    first movers can gain a scale based cost advantage that later entrants find difficult
    to match

    7. Porter Diamond Theory:

    Michael Porter tried to explain why a nation achieves international success in a particular
    industry and identified four attributes that promote or impede the creation of competitive
    advantage

    1. Factor endowments - a nations position in factors of production necessary to compete


    in a given industry

    can lead to competitive advantage


    can be either basic (natural resources, climate, location) or advanced (skilled
    labor, infrastructure, technological know-how)

    2. Demand conditions - the nature of home demand for the industrys product or service

    influences the development of capabilities

    sophisticated and demanding customers pressure firms to be competitive

    3. Relating and supporting industries - the presence or absence of supplier industries and
    related industries that are internationally competitive

    can spill over and contribute to other industries

    successful industries tend to be grouped in clusters in countries

    4. Firm strategy, structure, and rivalry - the conditions governing how companies are
    created, organized, and managed, and the nature of domestic rivalry

    different management ideologies affect the development of national competitive


    advantage

    vigorous domestic rivalry creates pressures to innovate, to improve quality, to


    reduce costs, and to invest in upgrading advanced features

    International Investment Theories

    You might also like