2 international trade Flashcards
theory of mercantilism
wealth of the world (measured in gold & silver is fixed
nation that export more than import, enjoy a net inflows of gold & silver and thus become richer
protectionism
idea that government should actively protect domestic industries form imports & vigorously promote exports
weaknesses: inefficient allocation of resources, reduces the wealth of the nation in the long run
theory of Absolute advantage
nation gain by specializing in economic activities in which has an absolute advantages
Free trade
buying & selling G&S with lilt or no government intervention
absolute advantage =
to be more efficient that anyone else in production of one G or S
problem: when 1 nation is absolutely inferior that another the theory is unable to provide any advantage (many nation difficult to find an absolute advantage)
Comparative advantage
relatives advantage in one economic activity that one nation enjoys in comparison with others
as long as nation B is not less efficient in the production of all goods compared to nation A, nation B can choose to specialize in the production of one good in which it has a comparative advantage
Nations should specialize in economic activities in which they have a comparative advantage and trade with others
Modern trade theories - Product like cycles
comparative advantage first resides in the lead innovation nation, which export to other nation
product migrate to other advance nation, then to developing C in different product like cycles stage.
strength: dynamic, more realistic
wackinesses: men new product launched simultaneous around the world
Modern trade theories - strategic trade
strategic intervention by governments in certain industries can enhance their chances for international success
first mover firms, aided by governments, may have better odds at winning
strengths: more realistic and positively incorporates the role of governments in trade. provides direct policy advice
weaknesses: ideological resistance form many “free trade” scholars & policy market.
Modern trade theories - theory of national competitive advantage of industry: diamond theory
certain industries within a nation are competitive internationally
strength: most recent, most complex and most realistic theory
weaknesses: not comprehensively tested.
Realities of international trade - tariff barriers:
tariff barriers: means of discouraging import by placing a tariff (tax) on imported goods
Realities of international trade - import tariff
import tariff: tax imposed on a good brought in from another country
non-tariff barrier (NTB) - examples
import quota
local content requirement: rules that certain proposition of the values of the goods made in one country must originate from that country
Administrative policy: bureaucratic rules that make harder to import foreign goods
antidumping duty: costs levied on imports that have been dumped
infant industry argument: young domestic firm need government protection because they have no chance of surviving & will be crushed by a mature foreign rivals
trade embargo: politically motivated trade sanction against foreign countries to signal displeasure
