Chapter 6
International Trade Theory
An Overview of Trade Theory
The Patterns of International Trade
Trade Theory and Government Policy
The Benefit of Trade
Mercantilism
Absolute Advantage
Heckscher-Ohlin Theory
The Product Life-Cycle Theory
New Trade Theory
National Competitive Advantage:
Porter’s Diamond
country’s best interest to maintain a trade surplus
views trade as a zero-sum game
The new product stages: Made to satisfy consumer needs
The maturing product stage: Positive Feedback around the world
The standardized product stage
Research and development investments
Achieving economics of scope
Owners of international property
Opportunity costs
Economies of scale: the more you product, the lower the cost per unit
Exploiting the experience curve
Demand conditions
Relating and supporting industries
Factor endowments
Firm strategy, structure, and rivalry
Production of a product of a country is more efficient than any other country in producing it
Trade is a positive sum game
Comparative Advantage
Provides a strong rationale for encouraging free trade
Produce most efficiently and buy goods that they produce less efficiently from other countries
Trade is a positive sum game
Arises from differences in national factor endowments
⬆ abundant a factor, ⬇ its cost
Pattern of trade is determined by factor endowments
Implications For Managers
First-mover implications
Policy implications
Location implications
Balance Of Payments
balance-of-payments accounts
Three main accounts
Current account
Capital account
Financial account