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Business and Economics
WEEK 4:
Theories of International
Trade and Investment
Objectives
Group 1 Presentation
20 min, 10 min QnA
Quiz
Tutorial
Group Presentation
Group 1: Culture in International Business
How does religion influence the values and norms found within a given
country’s culture? What implications are raised by religion for a firm
seeking to internationalise?
How does social structure influence the values and norms found within a
given country’s culture? What implications are raised by social structure
for a firm seeking to internationalise?
How does language influence the values and norms found within a given
country’s culture? What implications are raised by language for a firm
seeking to internationalise?
Quiz time
TWO TEAMS
10 POINTS FOR RIGHT ANSWER
5 POINTS FOR PASSED ANSWERS
Prizes
QUESTION 1
Mercantilism is a bankrupt
theory that has no place in the
modern world. Discuss.
Mercantilism - a country should maintain a trade surplus,
even if that means that imports are limited by government
intervention.
Bankrupt theory because:
– Inconsistent with the general notion of globalization.
• Eventually, a country will find it difficult to export if
it imposes oppressive quotas and tariffs on its
imports.
– Consumers in the mercantilist country suffer.
• Denied access to either “cheaper” or more
“sophisticated” goods from other countries.
QUESTION 2
Is free trade fair? Discuss.
Trade theory suggests that specialization
and free trade benefits all countries.
However, a case can be made in some
situations for imposing trade barriers. E.g.:
– Infant industry argument
– National security
– Greece?
QUESTION 3
What are the potential costs of
adopting a free trade regime?
Do you think governments
should do anything to reduce
these costs? What?
Job loss
Government should:
–provide retraining programs OR
–Do nothing, it will all come out in
the wash
THE RISE OF BANGLADESH’S
TEXTILE TRADE (PG. 206)
CLOSING CASE:
Why was the shift to a free trade
regime in the textile industry good
for Bangladesh?
QUESTION 1
Until 2005, Bangladesh’s opportunities in the
developed nations were governed by a quota
system.
Introduction of free trade policies enabled
Bangladesh to increase its exports.
Competitive advantage in the production of textiles.
– low cost, productive labour force.
– strong network of supporting industries.
Also, attracted Western importers looking to
diversify their supplier base.
Who benefits when retailers in the
United States source textiles from
low wage countries such as
Bangladesh? Who might lose? Do
the gains outweigh the losses?
QUESTION 2
BANGLADESH
low cost, lower
price
competitive
advantage
US
Higher price -
fewer garments
purchased locally
Possible job loss
What international trade theory,
or theories, best explain the rise
of Bangladesh as a textile
exporting powerhouse?
QUESTION 3
Exporting powerhouse:
– Relatively low wages.
– Investments in boosting productivity
levels.
– Network of supporting industries.
Theory of comparative advantage
Porter’s theory of competitive advantage
How secure is Bangladesh’s
textile industry from foreign
competition? What factors could
ultimately lead to a decline?
QUESTION 4
Bangladesh is attractive due to:
– low cost garments
– the opportunity for importers to diversify their supply base
(Importers do not want to solely rely on China and see
Bangladesh as an attractive alternative to hedge risks).
However, their infrastructure could prove to be problematic for
its exporters.
– If importers find that infrastructure problems disrupt their
supplies, they could begin to look for new source
countries.
– Bangladesh should make the necessary investments to
avoid any disruptions in the industry.
Revision Quiz
According to Mercantilism, what should a country try to
maintain?
True or False: According to Free trade Theory, Government
should control imports.
What is Michael Porters trade theory called?
List two advantages of Free trade theory.
THE REGULATORY
FRAMEWORK
NEXT WEEK: