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Chapter 6 International Trade Theory (New Trade Theory (Research and…
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
country’s best interest to maintain a
trade surplus
views trade as a
zero-sum game
Absolute Advantage
Production of a product of a country is more efficient than any other country in producing it
Trade is a positive sum game
Heckscher-Ohlin Theory
Arises from differences in national factor endowments
:arrow_up: abundant a factor, :arrow_down: its cost
Pattern of trade is determined by
factor endowments
The Product Life-Cycle Theory
The new product stages: Made to satisfy consumer needs
The maturing product stage: Positive Feedback around the world
The standardized product stage
New Trade Theory
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
National Competitive Advantage:
Porter’s Diamond
Demand conditions
Relating and supporting industries
Factor endowments
Firm strategy, structure, and rivalry
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
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