Chapter 6: International Trade Theory
Free trade
First mover advantages
Government doesn´t inluence in quotas or duties, what citizen can buy from another country or what they can produce for another country
Benefits
Beneficial even for products a country can product, limits on imports are often in the interests of domestic producers.
Patterns of International Trade
Heckscher-Ohlin theory: factors of production, product life-cycle theory.
Krugman´s
Ricardo´s theory: differences in labor productivity.
Mercantilism
Mantain a trade surplus, to export more than imports..
Absolute Advantage: countries specialize in the production of goods, for have an absolute advantage, and then trade these goods for goods produced by other countries.
Gains for trade: the trade is a positive-sum game in which all countries that participate realize economic gains.
Some Qualifications and Assumptions
No transportation costs, no differences in price of resources, constant returns to scale, no effects of trade on income distribution within a country.
Dynamic effects and economic growth
Immobile resources: don´t always move easily from one economic activity to another.
Might increase a country´s stock of resources as increased supplies.
Also increase the efficiency with which a country uses its resources.
Trade can result dynamic changes
Factor endowments
Countries will export those good and services that make intensive use of factors that are locally abundant and scarce too.
World without trade
Variety of goods that a country can produce and the scale of production are limited by the size of the market.
World with trade
Individual markets combined into a larger world market, each nation can increase the variety of goods available.
Can gain a scale-based cost advantage that later entrants find almost impossible to match.
Demand conditions
Firms gain competitive advantage if their domestic consumers are sophisticated and demanding.