lecture chapter 6 Flashcards
free trade
a situation in which the government does not attempt to influence through quotas or duties what its citizens can buy from another country ot what they can produce and sell to another country.
Product life-cycle theory
focuses on production location changes as products become more widely accepted.
mercantilism
advocates government involvement in promoting exports and limiting imports. gold and silver are mainstays of national wealth. it is in a country’s best interest to maintain a trade surplus.
free trade argument
most export and import incentives are self-defeating and result in wasted resources.
The Samuelson Critique
lower prices may not make up for lower wages in the US if the dynamic effect of free trade is lower than the real wage rates in the US. it is also concerned with offshoring of service, lowering the wages. he also notes that historically, free trade has benefited wealthy countries and that introduces protectionist measures may be harmful to US.
Sachs and Warner
created a measure of how “open” to international trade an economy was. they then looked at a sample.
product life-cycle theory
over time, demand grows in other countries, and price becomes the main competitive weapon. historically, it is an accurate theory. now however, it is ethnocentric and increasingly dated. it can be used to explain patterns during american global dominance.
Porter’s Dimaond
firms are most likely to succeed in industries or industry segments where the diamond is most favourable. the diamond is a mutually reinforcing system. two additional variables can influence the national diamond; (1) chance, and (2) government.
basic factors
natural resources, climate, location, and demographic.
advanced factors
communication infrastructure, sophisticated and skilled labour, research facilities, and technological know-how. they are a product of investment by individuals, companies, and governments.
demand conditions
firms gain competitive advantage if their domestic consumers are sophisticated and demanding.
related and supporting industries
the benefits of investment in advanced factors of production by related and supporting industries can spill over into an industry, thereby helping it achieve a strong competitive position internationally.
firm strategy, structure, and rivalry
different nations have different management ideologies, which may or may not help them build national competitive advantage. there is a strong association between vigorous domestic rivalry and the creation and persistence of competitive advantage in an industry.
strategic trade policy arguments
(1) government can help raise national income when a domestic firm gains first-mover advantages. (2) it might pay for a government to intervene in an industry by helping domestic firms overcome barriers to entry created by foreign firms that have already reaped first-mover advantages. these arguments support government intervention in international trade.
Krugman
strategic trade policies are aimed at establishing domestic firms in a dominant position in a global industry boost national income at the expense of other countries. these policies will probably cause retaliation. it helps antidumping policies and rules that minimise trade-distorting subsidies.
