Theories of International Trade and International Investment
Importance of International Trade
Absolute Advantage
Product Life Cycle of Trade
The Heckers Ohlin Model
Labor and Capital produce two final goods
Capital is owned by government or business
Multiples factories of production
Factor proportion theory
Productive capital is owned but the government and normal capital by citizens
International trade is a way for countries to link other than social or political actives.
Trade increases the economic welfare of each country
Trade is more more free bc of its overral growth
Macro level explanation of a products like Cycles
Products go through high income, mass consumption, export markets until becoming imported product.
Cycle of high income and labor saving product
Four phases
Absolute advantage: Some countries posses natural or acquired advantages to produce a good.
Specialized products
Free competitions allowed efficient economy
Adam Smith believed that the service industries did not contribute to the nations wealth
Mercantilism
Diamond National Advantage
.
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Government should establish economic policies created to promote exports and to encourage imports.
Monarchs took this into practice
Objective:Pay trade surplus in gold or silver
Beging of forgein product,
Products become competitive in export market
Export strength
import competition
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Demand conditions
Supporting industries
Factor conditions
Firm strategy