This document outlines several theories of international trade, including theories of absolute advantage, comparative advantage, and factor proportions. It also discusses Porter's theory of competitive advantage of nations and reasons why countries implement trade barriers. The key theories discussed are theories of absolute advantage, comparative advantage, and factor proportions which explain why countries should specialize in producing and exporting goods they are relatively more efficient in.
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This document outlines several theories of international trade, including theories of absolute advantage, comparative advantage, and factor proportions. It also discusses Porter's theory of competitive advantage of nations and reasons why countries implement trade barriers. The key theories discussed are theories of absolute advantage, comparative advantage, and factor proportions which explain why countries should specialize in producing and exporting goods they are relatively more efficient in.
This document outlines several theories of international trade, including theories of absolute advantage, comparative advantage, and factor proportions. It also discusses Porter's theory of competitive advantage of nations and reasons why countries implement trade barriers. The key theories discussed are theories of absolute advantage, comparative advantage, and factor proportions which explain why countries should specialize in producing and exporting goods they are relatively more efficient in.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
This document outlines several theories of international trade, including theories of absolute advantage, comparative advantage, and factor proportions. It also discusses Porter's theory of competitive advantage of nations and reasons why countries implement trade barriers. The key theories discussed are theories of absolute advantage, comparative advantage, and factor proportions which explain why countries should specialize in producing and exporting goods they are relatively more efficient in.
Copyright:
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Download as PPT, PDF, TXT or read online from Scribd
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Chapter 5 - Theories of
International Trade.
Theory of Absolute Advantage (Adam
Smith 1776) - Each country should specialize in the production and export of that good which it produces most efficiently, with the fewest labor-hours. Theory of comparative advantage (David Ricardo 1819).
Theory of comparative advantage (David
Ricardo 1819) - Even if one country was most efficient in the production of two products, it must be relatively more efficient in the production of one good. It should then specialize in the production and exportation of that good in exchange for the importation of the other. Classical trade theory.
Division of labor. Comparative advantage. Gains from trade. Theory of factor proportions.
A country that is relatively labor (capital)
abundant should specialize in the production and export of that product which is relatively labor (capital) intensive. Other theories. Leontief Paradox - the U.S. was exporting more labor intensive products than it was importing - Measurement error, domestic equivalents, skilled and unskilled labor. Overlaping product ranges theory - marketers seek similar markets. Product life cycle theory - as the product matures it becomes more labor intensive and the comparative advantage shifts to different countries. Competitive advantage of nations (Michael Porter). A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade. Companies gain competitive advantage because of pressure and challenge. They benefit from having strong domestic rivals, aggressive home- based suppliers and demanding local customers. Differences in national values, culture, economic structures, institutions, and histories all contribute to competitive success. Competitive advantage of nations (Michael Porter). Factor conditions - Ability to innovate, upgrade, and deploy its factors. Demand conditions - highly competitive and demanding local markets. Related and supporting industries - close working relationships, proximity, and timeliness. Firm, strategy, structure and rivalry - appropriate and flexible conditions for the situation. Reasons for Trade Barriers
Protection of an infant industry.
Protection of the home market Foreign Exchange Requirements. Capital accumulation. Maintenance of Standard of living and real wages Conservation of Natural Resources. Reasons for Trade Barriers (Contd.). Industrialization of a Developing Nation. Maintenance of employment and reduction of unemployment. National Defense Increase of business size. Self-reliance Retaliation, bargaining, balance of trade etc. In Most Cases Protectionism results in:
Consumers paying a higher cost
Industries getting stagnant and inefficient Lower quality goods for higher prices. Inflation. Lower standard of living. Retaliation by trading partners.