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