IBT C2
are simply different theories to explain international trade.
International trade theories
is the concept of exchanging goods and services between two people or entities.
Trade
is then the concept of this exchange between people or entities in two different countries
International trade
What are the two major trade theories?
Classical or Country-Based Trade Theories
Modern or firm-based Trade theories
What are the four sub theories under Classical?
Mercantilism, Absolute Approach, Comparative Approach and Heckscher-ohlin Theory
believed that a country should increase its holdings of gold and silver by promoting exports and discouraging imports
mercantilism
a situation where the value of exports are greater than the value of imports
Trade Surplus
A situation where the value of imports is greater than the value of exports.
trade deficit
One way that many of these new nations promoted exports was to impose restrictions on imports. This strategy is called ____ and is still used today.
protectionism
Smith (1776) reasoned that trade between countries shouldn’t be regulated or restricted by government policy or intervention
Focused on the ability of a country to produce a good more efficiently than another nation.
Absolute advantage
A person or a country will specialize in doing what they do relatively better. In reality, the world economy is more complex and consists of more than two countries and products.
comparative advantage
stated that countries would produce and export goods that required resources or factors that were in great supply and, therefore, cheaper production factors. In contrast, countries would import goods that required resources that were in short supply, but higher demand.
factor proportions theory
because it was the reverse of what was expected by the factor proportions theory.
Leontief Paradox
which refers to trade between two countries of goods produced in the same industry
intraindustry trade
Swedish economist Steffan Linder developed the ___ theory in 1961, as he tried to explain the concept of intraindustry trade.
country similarity theory
Linder’s theory proposed that consumers in countries that are in the same or similar stage of development would have similar preferences
country similarity theory
Raymond Vernon, a Harvard Business School professor, developed the theory in the 1960s.
product life cycle
product life cycle has three distinct stages
new product, maturing and standardized
refer to the obstacles a new firm may face when trying to enter into an industry or new market
barriers to entry
efforts to gain a competitive advantage against other global firms in their industry
Global Strategic Rivalry Theory
stated that a nation’s competitiveness in an industry depends on the capacity of the industry to innovate and upgrade. His theory focused on explaining why some nations are more competitive in certain industries
Porter’s theory
as key factors in determining what products a country will import or export.
Porter added to these basic factors a new list of advanced factors, which he defined as skilled labor, investments in education, technology, and infrastructure.
local market resources and capabilities
that a sophisticated home market is critical to ensuring ongoing innovation, thereby creating a sustainable competitive advantage. Companies whose domestic markets are sophisticated, trendsetting, and demanding forces continuous innovation and the development of new products and technologies.
local market demand condition
To remain competitive, large global firms benefit from having strong, efficient supporting and related industries to provide the inputs required by the industry. Certain industries cluster geographically, which provides efficiencies and productivity.
Local suppliers and complementary industries.
include firm strategy, industry structure, and industry rivalry. Local strategy affects a firm’s competitiveness. A healthy level of rivalry between local firms will spur innovation and competitiveness.
Local firm characteristics
Porter’s theory states that a nation’s competitiveness in an industry depends on the capacity of the industry to innovate and upgrade. He identified four key determinants, what are these?
(1) local market resources and capabilities (factor conditions), (2) local market demand conditions, (3) local suppliers and complementary industries, and (4) local firm characteristics.
A main differentiator of political systems is each system’s philosophy on the rights of the individual and the group as well as the role of government.
is basically the system of politics and government in a country.
political system
political philosophies, or ideologies, is ___, which contends that individuals should control political activities and public government is both unnecessary and unwanted.
anarchism
, which contends that every aspect of an individual’s life should be controlled and dictated by a strong central government.
In reality, neither extreme exists in its purest form. Instead, most countries have a combination of both, the balance of which is often a reflection of the country’s history, culture, and religion
totalitarianism
, which asserts that both public and private groups are important in a well-functioning political system. Although most countries are pluralistic politically, they may lean more to one extreme than the other.
pluralism
is the most common form of government around the world today. This governments derive their power from the people of the country, either by direct referendum (called a direct democracy) or by means of elected representatives of the people (a representative democracy).
Democracy
is an economic system in which the means of production are owned and controlled privately.
capitalism
is one in which the government or state directs and controls the economy, including the means and decision making for production
a planned economy
In essence, there are three main kinds of legal systems—
common law, civil law, and religious or theocratic law
is based on a detailed set of laws that constitute a code and focus on how the law is applied to the facts. It’s the most widespread legal system in the world.
Civil law
is based on traditions and precedence. In common law systems, judges interpret the law and judicial rulings can set precedent.
Common law
is also known as theocratic law and is based on religious guidelines. The most commonly known example of religious law is Islamic law, also known as Sharia
Religious law
The most commonly known example of religious law is Islamic law, also known as Shanria
False Sharia
Two kinds of Tariffs
Specific and documentation
is a form of government payment to a producer.
Types of subsidies include tax breaks or low-interest loans; both of which are common. Subsidies can also be cash grants and government-equity participation, which are less common because they require a direct use of government resources.
Subsidies
There are two main categories of international investment
portfolio investment and foreign direct investment.
refers to the investment in a company’s stocks, bonds, or assets, but not for the purpose of controlling or directing the firm’s operations or management.
Portfolio investment
refers to an investment in or the acquisition of foreign assets with the intent to control and manage them.
Foreign direct investment (FDI)
refers to investments coming into the country
inward FDI
are investments made by companies from that country into foreign companies in other countries.
outward FDI
The difference between inward and outward is called the ____ which can be either positive or negative.
net FDI inflow,
Factors That Influence a Company’s Decision to Invest
cost, logistics, market, natural resources, impact and culture
is it cheaper to produce in the local market than elsewhere?
Cost
. Is it cheaper to produce locally if the transportation costs are significant?
Logistics
. Has the company identified a significant local market?
Market
Is the company interested in obtaining access to local resources or commodities?
Natural resources