International trade theory

Question 1

What is Mercantilism?

Answer 1

・Originated in the 16th to 18th centuries.

・Suggests that a country’s wealth is measured by its stock of precious metals (gold and silver).

・Advocates for a positive trade balance (exports greater than imports) through protectionism and colonial expansion.

Question 2

What is Absolute Advantage?

Answer 2

Proposed in the late 18th century by Adam Smith.

Suggests that countries should specialise in producing goods where they have an absolute advantage (can produce more efficiently than other countries) and trade with others to benefit from specialisation.

Question 3

What is comparative advantage?

Answer 3

It posits that countries should specialize in producing goods with a lower opportunity cost.

While this model explains trade patterns effectively, it assumes that advantages remain static, which is rarely true.

Question 4

What are the components of political economy?

Answer 4

【Legal system】
・Common law
・Civil law
・Theocratic law
・Market economy law = combination of common law and civil law
・Contract
・Regulatory environment

【Economic system】
・Market economy
・Command economy
・Mixed economy

【Political system】
・Collectivism
・Individualism
・Democracy
・Totalitarianism

Question 5

What is international trade theory?

Answer 5

International trade theory refers to the body of concepts and principles that explain the patterns and benefits of trade between nations.

It encompasses various models and frameworks that illustrate why countries engage in trade, how they benefit from it, and the impact of trade policies.

Question 6

What challenges do organisations entering foreign markets need to address?

Answer 6

・Navigating protectionist policies

・Complying with diverse legal and regulatory standards

・Managing economic policy uncertainty

・Integrating into global value chains

・Understanding the varying roles of state involvement

Question 7

What did Baldwin suggest?

Answer 7

For economists to have more influence on trade policy, they need to better understand and integrate the political processes and institutional frameworks that shape these policies (Baldwin, 1989).

Question 8

Why did the divergence between economic theory and actual trade policy emerge?

Answer 8

Because of the different incentives and pressures faced by policymakers.

Between economics and politicians.

Question 9

When and who does politician prefer protectionism?

Answer 9

・When the costs of redistribution are high

・When the benefits of free trade are diffuse and small for the majority of votes

・When it’s less transparent and politically more palatable

・Industries which has large, geographically dispersed workforce

・Industries with significant lobbying power or voting strength

Question 10

What are other problems?

Answer 10

Trade policies are also influenced by international interactions and the potential for retaliatory measures from other countries.

Question 11

What does Neilson (2014) suggest?

Answer 11

・Introduces the concepts of Global Value Chains (GVCs) and Global Production Networks (GPNs) within the context of the changing international political economy.

It highlights how these frameworks help explain the complex interactions between various economic actors and international labor division.

Question 12

What are Global Value Chains (GVCs) and Global Production Networks (GPNs)?

Answer 12

・GVCs and GPNs are frameworks that describe the global economic activities of firms, regions, and nations.

・Focus on how value is created, retained, and captured globally, emphasising chain governance and network dynamics.

・Shift from passive market reactions to active coordination and control by lead firms.