International Trade
Purchase, sale, or exchange of goods and services across national borders
Benefits of International Trade
Greater choice of goods and services
Important engine for job creation in many countries
Mercantilism
1550
Trade theory that nations should accumulate financial wealth, usually in the form of gold, by encouraging exports and discouraging imports
Three Pillars
Maintain trade surplus
Government Intervention
Colonialism
Absolute Advantage
Ability of a nation to produce a good more efficiently than another nation
Tea and rice
Riceland gets five times more tea than it would have produced itself.
Tealand gets two times more rice than it would have produced itself.
Comparative Advantage
Inability of a nation to produce a good more efficiently than other nations but an ability to produce that good more efficiently that it does any other good
Porters diamond theory
Porter’s national Competitive advantage theory recognizes that Countries don’t compete—Firms do!
His theory states that a nation’s competitiveness in any industry depends on the capacity of the firms in that Industry to upgrade and innovate
Theories of Absolute and Comparative Advantage
Nations strive only to maximize production and consumption.
Only two countries produce and consume just two goods.
No transportation costs of traded goods.
Labor is the only resource used to produce goods and it cannot cross borders.
Specialization does not create efficiency and improvement gains.
Diamond Theory
1- Factor Conditions - Basic/Advanced Factor
2- Demand Conditions - Sophisticated Buyers
3- Related and supporting Industries - Clusters
4- Firm Strategy, Structure and Rivalry - Competitiveness
Government and Chance
Factor Conditions
Production factors relevant for competition in particular industries
- Cost and qualification of available labor
- Natural and capital resources (venture capital markets)
- Infrastructure (roads, airports, deep water ports, power)
- Educational and business development institutions
- Research facilities, political and judicial systems
