Transcript Chapter 3: Theories of International Trade and Investment

Theories of International
Trade and Investment
Chapter 3
International Trade Theory
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Mercantilism
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Goals
Effects on today
Economic nationalism
Theory of Absolute Advantage
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Adam Smith
Specialize
International Trade Theory
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Heckscher- Ohlin Theory of Factor Endowment
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Countries export
Countries import
Assumptions
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Leontief Paradox
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Perfect market
Technology
U.s. is capital-intensive
Why?
Outcome
Differences in Taste
Money can change flow of trade
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Exchange rates
Currency devaluation
International Trade Theory
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New Explanations for Direction of Trade
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Economies of scale and experience curve
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Why?
First-mover theory
Linder Theory of Overlapping Demand
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Manufacturing goods
Income levels
International Product Life Cycle
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What is it?
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Process
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Exports imports
U.S. exports
Foreign production begins
Foreign competition in export markets
Import competition in U.S.
Technology Life Cycle
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U.S develops
Other developed
Developing
Porter’s Competitive Advantage of
Nations
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What is it?
Factors
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Demand conditions
Factor conditions
Related and supporting industries
Firm strategy, structure, and rivalry
Summary
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Differences in endowments of factors of
production
Differences in level of technology
Differences in efficiencies with which
factor intensities are utilized
Foreign exchange rates
Trade Restrictions
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Arguments for Restriction
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National Defense
Sanctions to Punish Offending Nations
Protect Infant Industries
Protect Declining Industries
Protect Domestic Jobs
Scientific Tariff or “Fair Competition”
Retaliation
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Dumping
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Five types
Subsidies
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Countervailing duties
Trade Barriers
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Tariffs
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Ad valorem
Specific duty
Compound duty
Official prices
Variable levy
Lower duty for more local input
Trade Barriers
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Nontariff Barriers
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Quantitative
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Quotas
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Absolute
Tariff-rate
Global
Voluntary export restraints
 Orderly marketing arrangements
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Multifiber Arrangement
Trade Barriers
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Nontariff Barriers
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Nonquantitative
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Direct government participation in trade
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Agriculture procurement policies
Government procurement policies
1920 Jones Act
Customs and other administrative procedures
Standards
Managers must be aware of barriers!!!!!!
Trade Barriers
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Multinational Global Manufacturing
Systems
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Two options
Costs of Barriers
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Consumer costs
Economic Development
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Categories
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Developed
Developing
New Industrialized Countries
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Three characteristics
Newly Industrialized Economies
IMF Classifications
World Bank
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GNP/capita
Problems with that
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Underground market
Exchange rates
Purchasing power parity
Atlas conversion factors
Characteristics of Developing
Nations
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GNP/ capita of less than $9,075
Unequal distribution of income, small middle class
Technological dualism
Regionalism dualism
80-85% of population in unproductive agricultural sector
Disguised unemployment or underemployment- two people doing what one
can do
High population growth (2.5-4%)
High rate of illiteracy
Widespread malnutrition
Political instability
High dependence on few exports (agriculture and minerals)
Inhospitable topography
Low savings rates and inadequate banks
Human-Needs Approach
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Goals
Human Development Index
Investment in Human Capital
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Return
International Investment Theories
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Monopolistic Advantage Theory
Product and Factor Market Imperfections
International Product Life Cycle
Other Theories
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Follow-the-leader theory
Cross investment
Internationalism theory
Dunning’s Eclectic Theory of International Production
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Ownership-specific
Internalization
Location-specific