INTERNATIONAL TRADE
THEORIES
Prepare for your exams
Study with the several resources on Docsity
Earn points to download
Earn points by helping other students or get them with a premium plan
Guidelines and tips
Prepare for your exams
Study with the several resources on Docsity
Earn points to download
Earn points by helping other students or get them with a premium plan
Community
Ask the community
Ask the community for help and clear up your study doubts
University Rankings
Discover the best universities in your country according to Docsity users
Free resources
Our save-the-student-ebooks!
Download our free guides on studying techniques, anxiety management strategies, and thesis advice from Docsity tutors
Economics - INTERNATIONAL TRADE THEORIES - Prof.Uddeepan Chatterjee, Study notes of Economics
In this document description about INTERNATIONAL TRADE THEORIES, Why Companies Trade Internationally?, Basic Trade Theory, Theory of Absolute Advantage Adam Smith, Theory of Comparative Advantage David Ricardo, Concept of Opportunity Cost in Comparative Advantage.
Typology: Study notes
2010/2011
1 / 22
This page cannot be seen from the preview
Don't miss anything!
Related documents
Partial preview of the text
Download Economics - INTERNATIONAL TRADE THEORIES - Prof.Uddeepan Chatterjee and more Study notes Economics in PDF only on Docsity!
INTERNATIONAL TRADE
THEORIES
Why Companies Trade
Internationally?
- (^) They must foresee
profits in Exporting &
Importing.
- (^) More opportunity in
International market
than domestic market
Theory of Absolute Advantage Adam Smith
- (^) Capability of one country to produce more of a product with the same amount of input than another country.
- (^) This theory says that by specializing in the production of goods which they can produce more efficiently than any others, nations can increase their economic well being.
- (^) Produce only goods where you are most efficient , Import for those where you are not efficient.
- (^) Both country can gain by trade ,if they exchange products at a relative price of 1:1.
Theory of Comparative Advantage David Ricardo Should trade even if country is more efficient in the production than its trading partner. Eg. of England & Portugal
Competitive Advantages & Trade
Opportunities
Porter’s Diamond
- (^) The Competitive Advantage of Nations.
- (^) Looked at 100 industries in 10 nations.
- (^) Question: “Why does a nation achieve
international success in a particular industry?”
- (^) Factor endowments:nation’s position in factors of production such as skilled labor or infrastructure necessary to compete in a given industry.
- (^) Demand conditions:the nature of home demand for the industry’s product or service.
- (^) Related and supporting industries:the presence or absence in a nation of supplier industries or related industries that are nationally competitive.
- (^) Firm strategy, structure and rivalry:the conditions in the nation governing how companies are created, organized, and managed and the nature of domestic rivalry.
Determinants of National
Competitive Advantage
• Success occurs where these attributes
exist.
- (^) More/greater the attribute, the higher chance
of success.
• The diamond is mutually reinforcing
The Diamond
Factor Endowments
- (^) Basic factors:
- (^) natural resources
- (^) climate
- (^) location
- (^) demographics
- (^) Advanced factors:
- (^) communications
- (^) skilled labor
- (^) research
- (^) technology
Related and Supporting Industries
- (^) Creates clusters of supporting industries that are internationally competitive.
- (^) Must also meet requirements of other parts of the Diamond.
- Management ‘ideology’ can either help or hurt you.
- Presence of domestic rivalry improves a company’s competitiveness.
Firm Strategy, Structure and Rivalry
Factor Endowment Theory
Heckscher (1919)-Olin (1933) Theory
- (^) Labor is not the only Factor of production. We need to account for land, capital, and technology.
- (^) Factor endowments: extent to which a country is endowed with such resources as land, labor, and capital.
- (^) Export goods that intensively use factor endowments which are locally abundant
- (^) Import Products requiring a large amount of production factors that are scarce in their country.
• Disputes Heckscher-Olin in some
instances.
• Factor endowments can be impacted by
government policy - minimum wage.
• US tends to export labor-intensive
products, but is regarded as a capital
intensive country.
The Leontief Paradox, 1953
The Product Life-Cycle Theory
- (^) It helps to explain why a product that begins as a nation’s Export often ends up as an Import. International Product Life Cycle New Product Stage Consumption is in Home State Maturing Prod. Stage Export Incr.,Competition Incr. Stdized Prod.Stage The tech. becomes widely available, Production shift to low cost location.
New Trade Theory
- (^) Emerged in 1970’s
- (^) Deals with the returns on specialization where substantial economies of scale are present. - (^) Specialization increases output, ability to enhance economies of scale increase.
- (^) World demand will support few competitors
- (^) First-mover advantage
- (^) Some argue that it generates government intervention and strategic trade policy