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Ch.3 Theories of International Trade and Investment - Coggle Diagram
Ch.3 Theories of International Trade and Investment
International Trade in General
Is the exchange of goods and services between
people, organizations, and countries.
H-O Factor Proportions Model
The Heckscher–Ohlin
Allows multiple factors of production
Capital: refers to the physical
machines and equipment that is used in production.
The H-O model assumes private ownership of capital.
It defines the ratio of the quantity of capital to the
quantity of labor in a production process as the capital–labor ratio
Only difference between countries ilies on their factors of production
the labor-abundant country
will export the labor-intensive good.
Adam Smith
Free competition was the essential ingredient of the efficient economy.
Theory of Absolute Advantage: The ability of producing a good or a service using a more efficient process than any other entity.
Four principles of taxation:
Economy
Convenience
Certainty
Equality
A countries advantage can be either:
Technology and Skills
Climate and Natural Resources
Mercantilism
is an economic and cultural philosophy reflecting the emergence of economies based on commerce.
commonly involved
extensive governmental intervention in economic life with the objective of fostering growth.
colonies as markets for their manufactures - to complement the economy.
“laissez faire, laissez passer,” (Leave things alone, let goods pass).
NeoMercantilism: is a policy regime that encourages exports, discourages imports and controls capital movement
David Ricardo
Theory of Comparative Advantage: gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins.
Trade will take place where cost differences exist.
Comparative advantage was based on what was given up or traded off in producing one product instead of the other.
considers only one factor of production—labor.
Raymond Vernon
Product Life Cycle
IPLC: International Product Life Cycle
“the model claims that many products go through a trade cycle"
Products, like living organisms, go through stages of birth, development, growth, maturity, decline, and demise
Identifies four stages that the trade patterns
go through:
United States exports strength
Foreign production starts
Foreign production becomes competitive in export markets
Import competition begins
is fundamentally production-oriented
does not focus on consumer-oriented sociocultural and behavioral variables
Porters Diamond
a nation attains a competitive advantage if its firms
are competitive.
Firms become competitive through innovation.
His model focuses on four primary conditions that he arranged in a diamond-shaped diagram
Counts with 4 key elements
Related and supported industries
Demand Conditions
Firm strategy, structure and rivalry
Factor Conditions
if the elements in the diamond are increasingly present,
trade increases.
Government plays an
important role
as pusher and
challenger
Educational policies
Antitrust regulations
Subsidies
Tax codes