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INTERNATIONAL TRADEINTRODUCTION
TRADE THEORIES Trade theories may be broadly classified into two types: (1) theories that deal with the natural order of trade (i.e. they examine and explain trade that would exist in the absence of governmental interference) and (2) theories that prescribe governmental interference, to varying degrees, with free movement of goods and services among countries. Category 1 Absolute advantage
Comparative advantage
Country size
Factor-Proportions theory
Figure 1. RCC Structure Figure 2. Steel Structure Product Life Cycle
Figure 3. The Product Life Cycle
Country-Similarity Theory
Category 2
WHY COMPANIES TRADE?
TRADE IMPEDIMENTS
GOVERNMENTAL INTERVENTION ON TRADE Reasons:
FORMS OF TRADE CONTROL
References: Baldwin, R. E. (1971). Determinants of the commodity structure of U. S. trade. American Economic Review, 61, pp. 126-146. Baldwin, R. E. (1979).Determinants of foreign trade and investment: Further evidence. Review of Economics and Statistics, 61, pp. 40-48 Which theory suggests that a country should produce and export those goods and services for which it is relatively?[4] The so-called Heckscher-Ohlin theory basically holds that a country will export those commodities that are produced by the factor that it has in relative abundance and that it will import products whose production requires factors of production where it has relatively less abundance.
What theory states that countries should export more than they import?Mercantilism was introduced in Europe as a way to improve wealth in the country by exporting to increase profit versus importing, which is more costly. Absolute advantage is the ability to produce the maximum quantity of an item more efficiently than competing countries.
Which trade theory focuses more on exports?Comparative advantage
This theory strengthened the understanding of the nature of trade and acknowledges its benefits. The theory suggests that it is better if a country exports goods in which its relative cost advantage is greater than its absolute cost advantage when compared with other countries.
Which theory states that a country should export those products that it produces most efficiently?Comparative advantage theory states that a country should buy from other countries those products that it produces most efficiently and sell to other countries those products it cannot produce as efficiently.
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