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Chap 6: International Trade Theory (Gov Trade Roles (Mercantilist…
Chap 6: International Trade Theory
Free Trade
Gov does not attempt to influence through quotas or duties what it's citizens can buy from another country or what they can produce & sell to another country.
International Trade
Specialise in manufature and export of products & service that it can produce efficiently.
Import products & services that can be produced more efficiently in other countries.
Limit on imports may be beneficial to producers, but not beneficial for consumers.
Gov Trade Roles
Mercantilist philosophy
(Refer slides)
makes a crude case for gov involvement in promoting exports & limiting imports
Smith,Ricardo & Heckscher-Obline
(Refer slides)
promoted unrestricted free trade
New Trade Theory
(Refer to slides)
Justify limited & selective gov intervention to support the developemtn of certain export-orientated industries.
Porter's theory of national competitive advantage
Justify limited & selective gov intervention to support the developemtn of certain export-orientated industries.
Product-Life Cycle Theory
Defination
as products mature, both the location of sales & the optimum production location will change affecting the flow & direction of trade.
According to PLC
The size and wealth of the U.S. market gave U.S. firms a strong incentive to develop new products
Initially, the product would be produced and sold in the US
As demand grew in other developed countries, U.S. firms
would begin to export
Demand for the new product would grow in other
advanced countries over time making it worthwhile for
foreign producers to begin producing for their home
markets
U.S. firms might set up production facilities in advanced countries with growing demand, limiting exports from the U.S.
As the market in the U.S. and other advanced nations matured, the product would become more standardized, and price would be the main competitive weapon
Producers based in advanced countries where labor costs were lower than the United States might now be able to export to the United States.
If cost pressures were intense, developing countries would acquire a production advantage over advanced countries
Production became concentrated in lower-cost foreign locations, and the U.S. became an importer of the product
The product life-cycle theory accurately explains what has happened for products like photocopiers and a number of other high technology products developed in the United States in the 1960s and 1970s.
Porter's Diamond of Competitive Advantage
4 attributes
Factor endowments
a nation’s position in factors of production necessary to compete in a given industry
can lead to competitive advantage
can be either basic or advanced
Demand Conditions
the nature of home demand for the industry’s product or service
influences the development of capabilities
sophisticated and demanding customers pressure firms to be competitive
Relating & Supporting industries
the presence or absence of supplier industries and related industries that are internationally competitive
can spill over & contribute to other industries
successful industries tend to be grouped in clusters in countries
firm strategy, structure & rivalry
the conditions governing how companies are created, organized, and managed, and the nature of domestic rivalry
different management ideologies affect the development of national competitive advantage
vigorous domestic rivalry creates pressures to innovate to improve quality, to reduce costs, & to invest in upgrading advanced features
implications for managers
Location
a firm should disperse its various productive activities to those countries where they can be performed most efficiently
First-mover
a first-mover advantage can help a firm dominate global trade in that product
Policy
firms should work to encourage governmental policies that support free trade