Globalbusiness CH5 Flashcards
free trade
government is not involved in any way
international trade allows a country to…
specialize in manufacturing and exports and products and services that they can produce efficiently, leads to importing other products and services that another country can produce more efficiently
mercantilist
government involvement in promoting exports and limiting imports
who promotes unrestricted trade
Smith, Ricardo and Hecksher- Ohlin
new trade theory
is Porters theory, limited and selective government intervention
trade surplus is? and is also known as…?
exports > imports, zero sum game because it results in a gain by one country and a lose in another
Smiths theory of Absolute advantage
country has absolute advantage in the production of a product when it is more efficient than any other country therefore countries should specialize in production to create a positive sum game.
Ricardos theory of Competitive Advantage
countries should specialize in the production of those goods and services they produce more efficiently and buy goods that they produce lass efficiently from other countries. Competitive advantage provides a strong rational for encouraging free trade
immobile resources
resources that do not always move from one economic activity to another
diminishing returns
more units of resources are required to produce each additional unit
dynamic effect and economic growth
opening a country to trade could increase a countries stock of resources as increased supplies and become available from abroad
efficiency of resource utilization
free up resources from other users
how could a country be worse off with free trade
ability to outsource service jobs that were traditionally not internationally mobile may have the same effect of a mass migration into the US where wages would then fall
4 theories of International Trade
- Hecksher - Ohlin theory
- Product life cycle theory
- new trade theory
- national competitive advantage: Porters Diamond
HeckScher-Ohlin theory
Comparative advantage arises from differences in national factor endowment. predicts that countries will; export goods that make intensive use fo locally abundant factors. Import goods that make intensive use of factors that are locally scarce
Wassily Leontief theory
what were results of this at variance with
since the US was relatively abundant in capital compared to other nations the US would be a exporter of capital intensive goods and an importer of labour intensive goods.
at variance with predictions of the trade theory it became known as Leonteif paradox
product life cycle theory
products mature both the location of sales and the optimal production location will move to other countries affectively the flow of direction of trade
phases of new product life cycle
- New product phase
- maturing phase
- standardized product phase
New trade theory is also known as?
Economies of scale
what is first mover advantage?
Economic strategic advantages that occur to early entrants in the industry
Implications of new trade theory for nations?
what should new governments do?
nations may benefit from trade even when they have the same resource endowments or tech (at variance with Heckscher - Ohlin Theory). government should consider strategic trade policies that nurture and protect firms and industries where first mover advantages and economies of scale are important
Micheal porters determinants of national competitive advantage
4 attributes of of a nation to promote or impede the creation of competitive advantage
- factor endowments
- firm strategy structure and rivalry
- related and supplying industries
- demand conditions
what are factor endowments
a nations position in factors of production necessary to compete in a given industry (natural resources, climate change)
what are demand conditions?
nature of the home demand for the industry product or service influences the development of capabilities
what is related and supporting industries?
presents of supplier industries and related industries that are internationally competitive
what are a firms strategy, structure and rivalry
nature of domestic rivalry. how companies should be created, structured and managed
implication of trade theory for managers
location, first mover advantage, policies
