Chapter 6- International Trade Theory Flashcards
zero sum game; you should export more than you import so you have more of the gold than everyone else
mercantilism
countries should make things they have an absolute advantage in and buy things they don’t have an AA in; world as a whole will be better if we all trade with each other
Adam Smith; Wealth of Nations; invisible hand of the marketplace
should we return to mercantilism and buy things that are more expensive but made domestically
neo-mercantilism
basic idea of Adam Smith but what if one has a AA in everything then still have a 0 sum game; better to look at comparative advantage; opportunity loss concept; import things we can’t make as efficiently
David Ricardo and comparative advantage; how much does a country have to give up to make something
what are some flaws in Smith and Ricardo’s theories
they are assuming away transportation costs and assuming resources can move freely between industries
should focus on the factor endowments that a country has and that is how you decide what to make
Hecksher-Olin; looks at comparative advantage in a different way
to the extend that a country is endowed with certain resources should be making certain products based on the factors we have
factor endowments
it helps to have a large domestic market to introduce new products to like the US has; also a product will start out being made and sold in its domestic market but as it expands it will be made in areas where it is the cheapest
Ramon Vernon; Product Life Cycle Theory; the wealth and size of the US market gave firms the incentive to develop the new consumer products; his theories were a major driver for the formation of the EU
when a company establishes the competitive advantage at the beginning; works especially well where the world economy can only support a few companies; ex. Boeing
first mover advantage which is a part of the New Trade Theory
helps understand the competitive advantage nations possess due to certain factors and to explain how governments can act as catalysts to improve a country’s position in a globally competitive economic environment
the Porter Diamond developed by Michael Porter
economies of scale and first mover advantage
new trade theory
factor endowments, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry
national competitive advantage: Porter’s Diamond
we’ve created an environment where the consumer’s fell they are at odds with business and government should regulate; all these things should go hand in hand; need and everyone benefits mentality
Porter’s shared value theorem
