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
$eser'ed"
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Chapter 5: International
Trade Theory
INTRODUCTION
In this chapter:
Theories that explain why it is beneficial for a country to
engage in international trade are presented
The patterns of international trade that is obsered in the worldecono!y are explained
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Chapter 5: International
Trade Theory
"N O#$R#I$% O& TR"D$ T'$OR(
Free trade refers to a situation where a goern!ent does not
atte!pt to influence through )uotas or duties what its citi*ens can
buy fro! another country or what they can produce and sell to
another country+
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Chapter 5: International
Trade Theory
,$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 $ngland in the !id123th
century0 asserted that it is in a country4s best interest to !aintain
a trade surplus11 to export more than it imports.
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Chapter 5: International
Trade Theory
"5.O-UT$ "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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Chapter 5: International
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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Chapter 5: International
Trade Theory
'$C;.C'$R1O'-IN T'$OR(
'ec8sher and Ohlin argued that that countries will export goods
that !a8e intensie use of those factors that are locally abundant0while i!porting goods that !a8e intensie use of factors that are
locally scarce+
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"ccording to 5ertil Ohlin0 trade arises due to the differences in
the relatie prices of different goods in different countries+ The
difference in co!!odity price is due to the difference in factor
prices
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The &eontie' (aradox
" country will tend to export those co!!odities which uses its
abundance factors of production intensiely and i!port those
co!!odities which use its scarce factors intensiely+
-eontief reached a paradoxical conclusion that the U.>the !ost
capital abundant country in the world by any criterion>
exported labor1intensie co!!odities and i!ported capital1
intensie co!!odities+ This result has co!e to be 8nown as
the -eontief 9aradox+
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Chapter 5: International
Trade Theory
T'$ 9RODUCT -I&$ C(C-$ T'$OR(
In the !id12?3@s0 Ray!ond #ernon proposed the product li'e-
cycle theorythat suggested that as products !ature both thelocation of sales and the opti!al production location will change
affecting the flow and direction of trade+
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Chapter 5: International
Trade Theory
N$% TR"D$ T'$OR(
New trade theory suggests that because of economies o' scale
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Chapter 5: International
Trade Theory
Increasing 9roduct #ariety and Reducing Costs
$cono!ies of .cale0 &irst ,oer "dantages and the 9attern of
Trade
I!plications of New Trade Theory
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Chapter 5: International
Trade Theory
N"TION"- CO,9$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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