Chapter 1 - International trade Flashcards

1
Q

Treaty of Rome

A

Rome 1957

Creation of the European Union, originally six countries:
Belgium
France
Germany
Italy
Luxembourg
Netherlands
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2
Q

World Trade Organization

A

Replaced GATT in 1995 as global organization to enforce free trade

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3
Q

Worlds Largest EXPORTING Countries

A
China
U.S.
Germany
Japan
Netherlands
France
Korea
Russia
Italy
China
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4
Q

EURO

A

Currency was created in 1999, put into circulation in 2002 in 12 of the 15 countries

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5
Q

Worlds Largest IMPORTING Countries

A
U.S.
China
Germany
Japan
UK
France
Netherlands
China
Korea
India
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6
Q

Cost Drivers

A

Companies increase their sales worldwide to recover their high investment costs

EX:
Automobile production is dominated by 18 companies, concentrated across 15 countries, and sold in 143 countries

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7
Q

Competition Drivers

A

Companies enter foreign markets to keep up with their competitors, retaliate against them, or enter a market first

EX: French company Carrefour and US company Wal-Mart split the world market

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8
Q

Market Drivers

A

Companies enter foreign markets because their customers expect them to be present in those countries

EX: McDonalds, Hilton, Benneton, Cartier, Exxon-Mobil are all in close to 100/100+ countries

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9
Q

Technology Drivers

A

Companies enter foreign markets because their customers use technology to make purchases from these markets

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10
Q

Theory of Absolute Advantage

A

Adam Smith, 1776

An economic theory that holds that when a nation can produce a certain type of product more efficiently than other countries, it will trade with other countries that produce other goods more efficiently.

A country has absolute advantage if it produces more goods with the same amount of input. Ie if it is more efficient

EX: France and Germany require the same amount of labor to produce wine and machinery, respectively.

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11
Q

Theory of Comparative Advantage

A

David Ricardo, 1815-1817

An economic theory that holds that nations will trade with one another as long as they can produce certain goods relatively more efficiently than one another

Basically a country or company produces that which they can competitively, than purchases that which they can’t

EX: Ford can produce the parts to assemble it’s cars, but it doesn’t because it is cheaper to buy them from someone that can produce them more efficiently

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12
Q

Theory of Factor Endowment

A

Eli Heckscher and Bertil Ohlin 1933

Building on Ricardo’s comparative advantage theory: An economic theory that holds that a nation will have a comparative advantage over other countries if it is naturally endowed with a greater abundance of one of the factors of economic production

Factors: land, labor, capital, entrepreneurship

EX: Argentina - grazing land - beef
India - educated labor - call centers
USA - entrepreneurship - development of IP

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13
Q

International Product Life Cycle Theory

A

Raymond Vernon 1966

An economic theory that holds that, over its lifecycle a product will be manufactured in different countries

3 stages:

1- Product is created in a developed country, using new technology, to meet a market need

2- As sales grow, competitors start to make similar products in other developed countries, responding to local needs

3- manufacturing of product has become routine and costs need to be reduced, production moves to developing country

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14
Q

Cluster Theory

A

Michael Porter 1990

An observation that a firm can develop a substantial competitive advantage in manufacturing certain goods when a large number of its competitors and suppliers are located in close proximity

This is an explanation of success of certain regions ie Silicon Valley, Sassuolo Italy, Geneva

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15
Q

Logistics Cluster Theory

A

Yossi Sheffi 2012

An extension of Porter’s Cluster Theory: some locations can develop into economic powerhouses bc they combine in one area multiple providers of logistical services

EX: Singapore, Memphis, Rotterdam, Zaragoza

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16
Q

Factors of Economic Production

A

Land, labor, capital, entrepreneurship

17
Q

Bretton Woods Conference

A

Held in New Hampshire in 1944

Creation of IMF 1945

GATT 1948