trade theories.ppt

7/24/2019 trade theories.ppt

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chapter

InternationalTrade Theory

McGraw-Hill/Irwin

Global Business Today, 5e 2008 The McGraw-Hill Co!anies, Inc", #ll $i%h&s

$eser'ed"

5


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Chapter 5: International

Trade Theory

INTRODUCTION

In this chapter:

Theories that explain why it is beneficial for a country to

engage in international trade are presented

The patterns of international trade that is obsered in the worldecono!y are explained


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Trade Theory

"N O#$R#I$% O& TR"D$ T'$OR(

Free trade refers to a situation where a goern!ent does not

atte!pt to influence through )uotas or duties what its citi*ens can

buy fro! another country or what they can produce and sell to

another country+


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Trade Theory

,$RC"NTI-I.,

This Theory concentrates on the fact that / Countries shouldexport !ore than they i!port and receie the alue of trade

surplus in the for! of trade gold fro! those countries which

experience trade deficit+

Mercantilism0 which e!erged in $ngland in the !id123th

century0 asserted that it is in a country4s best interest to !aintain

a trade surplus11 to export more than it imports.


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Trade Theory

"5.O-UT$ "D#"NT"6$

In 27730 "da! .!ith attac8ed the !ercantilist assu!ption thattrade is a *ero1su! ga!e and argued that countries differ in their

ability to produce goods efficiently0 and that a country has an

absolute adanta!ein the production of a product when it is

!ore efficient than any other country in producing it+


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Trade Theory

CO,9"R"TI#$ "D#"NT"6$

In 2270 Daid Ricardo argued that it !a8es sense for a country

to speciali*e in the production of those goods that it produces!ost efficiently and to buy the goods that it produces less

efficiently fro! other countries0 een if this !eans buying goods

fro! other countries that it could produce !ore efficiently itself+


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Trade Theory

'$C;.C'$R1O'-IN T'$OR(

'ec8sher and Ohlin argued that that countries will export goods

that !a8e intensie use of those factors that are locally abundant0while i!porting goods that !a8e intensie use of factors that are

locally scarce+


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"ccording to 5ertil Ohlin0 trade arises due to the differences in

the relatie prices of different goods in different countries+ The

difference in co!!odity price is due to the difference in factor

prices


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The &eontie' (aradox

" country will tend to export those co!!odities which uses its

abundance factors of production intensiely and i!port those

co!!odities which use its scarce factors intensiely+

-eontief reached a paradoxical conclusion that the U.>the !ost

capital abundant country in the world by any criterion>

exported labor1intensie co!!odities and i!ported capital1

intensie co!!odities+ This result has co!e to be 8nown as

the -eontief 9aradox+


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Trade Theory

T'$ 9RODUCT -I&$ C(C-$ T'$OR(

In the !id12?3@s0 Ray!ond #ernon proposed the product li'e-

cycle theorythat suggested that as products !ature both thelocation of sales and the opti!al production location will change

affecting the flow and direction of trade+


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Trade Theory

N$% TR"D$ T'$OR(

New trade theory suggests that because of economies o' scale


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Trade Theory

Increasing 9roduct #ariety and Reducing Costs

$cono!ies of .cale0 &irst ,oer "dantages and the 9attern of

Trade

I!plications of New Trade Theory


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Trade Theory

N"TION"- CO,9$TITI#$ "D#"NT"6$: 9ORT$R4.

DI",OND

9orter4s 2??@ study tried to explain why a nation achiees

international success in a particular industry and identified

attributes that pro!ote or i!pede the creation of co!petitie

adantage+


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" !odel that atte!pts to explain the co!petitie adantage

so!e nations or groups hae due to certain factors aailable to

the!+ The 9orter Dia!ond is a !odel that helps analy*e and

i!proe a nationAs role in a globally co!petitie field+ The

!odel was deeloped by ,ichael 9orter0 who is recogni*ed as

an authority on co!pany strategy and co!petitionB it is a !ore

proactie ersion of econo!ic theories that )uantify

co!paratie adantagesfor countries or regions+
http://www.investopedia.com/terms/c/competitive_advantage.asphttp://www.investopedia.com/video/play/explaining-comparative-advantage/http://www.investopedia.com/video/play/explaining-comparative-advantage/http://www.investopedia.com/terms/c/competitive_advantage.asp


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