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Theories of International Trade and International Investment - Coggle…
Theories of International Trade and International Investment
International trade in general and it's importance
Countries are linked in many different ways, whether it is through political, social, cultural, or commercial events and activities.
International trade, which is the exchange of goods and services between :
People
Organizations
Countries
Mercantilism
Is an economic and cultural philosophy of the sixteenth and seventeenth centuries, which reflects the emergence of economies based on commerce
Mercantilist Doctrines
The measures taken by Jean Baptise Colbert (1619-1683). A central aim of mercantilism, was to increase the tax wealth of the kingdom, so they would have sufficient revenue to support his political consolidations.
Critics of Mercantilism
“Laissez faire, laissez passer,” which may be freely translated as “leave things alone, let goods pass.” This free trade philosophy was developed by Francois Quesnay (1694-1774).
Adam Smith & Theory of Absolute advantage.
Adam Smith’s (1723–1790)
Theory of Absolute Advantage
This is based on the fact that a country's advantage is either natural or acquired in the productions of good. Smith extended his division of labor in the production process to a division of labor and specialized products across countries
Contemporary trade theories
Globalization is a phenomenon that has remade the economy and trade balance of virtually every nation, reshaped almost every industry and touched billions of lives.
David Ricardo & Theory of comparative advantage
Ricardo took the logic of absolute advantage in production a step further to explain how countries could and should exploit their own advantages and gain from international trades.
Raymond Vernon and the product life cycle theory of Trade
The International Product Life Cycle (IPLC)
IPCL can be define as market life span stages the product goes through in international markets sequentially, simultaneously, or asynchronously.
Porter's diamond
According to Porter, a nation attains a competitive advantage if its firms are competitive. Firms become competitive through innovation. Innovation can include technical improvements to the products or to the production process.
Porter's Diamond
Factor conditions (i.e., the nation’s position in factors of production, such as skilled labor and infrastructure)
• Demand conditions (i.e., sophisticated customers in home market)
• Related and supporting industries (i.e., the importance of clustering)
• Firm strategy, structure, and rivalry (i.e., conditions for organization of companies and the nature of domestic rivalry)
The Hecksche-Ohlin (H-O, factor proportions) Model
The Heckscher-Ohlin model, also knowns as "Factor proportions theory" expands on the Ricardian model, by letting multiple factors of production.
The Main results of HO model, predicts the pattern of trade between countries based on the characteristics of the countries.