Scribd
Upload
21 views6 pages

International Trade Theories

The document discusses several theories of international trade including mercantilism, absolute advantage, comparative advantage, and newer theories like economies of scale, first mover theory, and Linder's theory of overlapping demand. It also discusses implications for business location, being a first mover, and trade policy.

Uploaded by

badega2601
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
21 views6 pages

International Trade Theories

The document discusses several theories of international trade including mercantilism, absolute advantage, comparative advantage, and newer theories like economies of scale, first mover theory, and Linder's theory of overlapping demand. It also discusses implications for business location, being a first mover, and trade policy.

Uploaded by

badega2601
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 6

International Trade Theories

1. Mercantilism:
-- An economic philosophy based on the belief that:
-- a nation’s wealth depends on accumulated treasure, usually
gold and silver
-- to increase wealth, govt. policies should promote exports and
discourage imports
-- Known as economic nationalism in modern terms, where
industrial policy is based on heavy state intervention
-- Heavy import restrictions and subsidies to exporters create
trade surplus

May 5, 2024 1
2. Theory of Absolute Advantage:
 Adam Smith claimed that market forces, not government should
determine the direction, volume, and composition of international trade
 Under free and unregulated trade nations should specialize in producing
those goods it could produce more efficiently.
 Had an absolute advantage (either natural or acquired)
 Absolute Advantage: the capability of one nation to produce more of a
good with same amount of input than another country.
 Take reference of example
3. Theory of Comparative Advantage:
What happens if a country holds absolute advantage in the prodn. of two
goods?????
Comparative Advantage: A nation having absolute disadvantages in the
production of two goods with respect to another nation has a comparative or
relative advantage in the production of the good in which its absolute
disadvantage is less.
May 5, 2024 2
Some Newer Explanations of Trade
Economies of Scale and The Experience Curve:
• As plant gets larger and output increases, the unit cost
of production decreases.
• Costs can be allocated over a larger quantity of
output.
• Production costs also drop because of the learning
curve.
• It permits industries to become low-cost producers
without having abundance of certain class of
production factors.

May 5, 2024 3
Some Newer Explanations of Trade
First Mover Theory:
• Firms that enter the market first (first movers) will
dominate the market soon.
• Early resource advantages and market developments
will lead to the competitive advantage.
• The resultant large market share will enable them too
obtain the benefits of economies of scale.

May 5, 2024 4
Some Newer Explanations of Trade
• The Linder Theory of Overlapping Demand:
– Developed by Swedish Economist, Stefan Linder.
– His theory emphasized on trade for manufactured goods.
– He stated that consumer’s tastes are strongly affected by the
income level, thus a nation’s income per capita determines
the kinds of goods they will demand.
– Industries produce to meet those demands reflected by
country’s level of income per capita. The goods produced for
domestic consumption eventually will be exported.
– He deduced that international trade will be greater between
nations with similar levels of per capita income because of
overlapping demand(consumers demanding same kind of
goods).
May 5, 2024 5
Implications for Business
• Location implications:
– Disperse production activities to countries where
they can be performed most efficiently

• First-mover implications:
– Invest substantial financial resources in building a
first-mover, or early-mover advantage

• Policy implications:
– Promoting free trade is in the best interests of the
home country, not always in the best interests of
the firm, even though many firms promote open
markets

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy