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Theories of International Trade and International Investment - Coggle…
Theories of International Trade and International Investment
Mercantilism
Mercantilism is an economic and cultural philosophy of the sixteenth and
seventeenth centuries, reflecting the emergence of economies based on commerce.
involved extensive governmental intervention in economic life with the objective of fostering the growth of national commerce and industry
Adam Smith and the Theory of Absolute
Advantage
According to this theory, a country can produce some goods more efficiently than
other countries.
a country’s advantage would be either natural (climate and natural resources) or acquired (technology and skills) in the production of goods
David Ricardo and the Theory of Comparative
Advantage
determining the laws that regulate the distribution (between the different classes of landowners, capitalists, and labor) of the produce of industry.
The Heckscher–Ohlin (Factor Proportions) Model
factor proportions theory
The standard H-O model6 begins by expanding the number of factors of production from one to two.
The model assumes that labor and capital are used in the production of two final goods.
All productive capital must be owned by someone.
The H-O model assumes private ownership of capital.
Use of capital in production generates income for the owner.
Raymond Vernon and the Product Life Cycle
Theory of Trade
The international product life cycle model suggests that many products go through a cycle during which high-income, mass consumption countries are initially exporters, then lose their export markets, and finally become importers of the product.
Product Cycle and Product Life Cycle: The purpose of the following section is to make a distinction between the product cycle and product life cycle concepts, to clarify the relationship between the two, and to redefine the international product life cycle (IPLC).
The product life cycle concept identifies four stages that the trade patterns go through.
United States exports strength
Foreign production starts
Foreign production becomes competitive in export markets
Import competition begins.
Contemporary Trade Theories
When factors are abundant, firms have a strong incentive to make efficient use of the available resources, and be innovative. In the North Sea, for example, their scarcity has led to the development of horizontal drilling to reach distant undersea oil reservoirs. Japan's scarcity has delivered us the just-in-time production.