Theories of International Trade - Lingkungan
Theories of International Trade - Lingkungan
Theories of International Trade - Lingkungan
Aim: To introduce some of the theories which help to explain practices and patterns in international trade.
Mercantilism Absolute advantage Comparative advantage Factor endowment theory International Product Life-Cycle The Internationalisation of the Firm
MERCANTILISM
MERCANTILISM (cont.)
Nationalistic/Protectionist Policies
Winners/Losers
Not sustainable
ABSOLUTE ADVANTAGE
Adam Smith, An Enquiry into the Nature and Causes of the Wealth of Nations. (1776) advocates free trade
export a commodity which can be produced at lower cost compared with other nations import a commodity which can be produced at lower cost by another nation
free trade increases a countrys wealth a countrys true wealth is measured by the wealth of all its citizens, not its king.
COMPARATIVE ADVANTAGE
David Ricardo, On the Principles of Political Economy and Taxation. (1817) a country should produce and export those goods and services at which it is comparatively more efficient and import those at which other countries are comparatively more efficient.
Opportunity cost
opportunity cost of a good is the value of what is given up in order to get the good
A country will have a comparative advantage in producing goods which make intensive use of factors of production which it has in abundance
A country should:
export products which use intensively its relatively abundant factors import products which use intensively its relatively scarce factors Leontief paradox
Product life-cycle:
Introduction Growth Maturity Decline
Trade-cycle concept/International plc (RaymondVernon -1960s): Manufacture for home market; exporting begins. Foreign production starts. Foreign producers become competitive in overseas markets. Import competition begins.
INTERNATIONAL PRODUCT LIFE-CYCLE (cont.) HOWEVER: International plc useful but provides only partial explanation of global trade Competition is international rather than domestic for all goods and services. simultaneous appearance of product in major markets. Production of capital intensive industries (electronics) moving to low labour cost countries. Trend towards global business integration; shared R&D.
Stages theory: 1. No regular export activities 2. Export via overseas agents 3. Establishment of an overseas sales subsidiary 4. Overseas production - Psychic/psychological distance
Network theory:
internationalisation as entrepreneurial process linked to networks networks provide support in terms of information, capital, human resources etc. reflects the dynamic and complex nature of international business better than linear stages model
Summary: Mercantilism: 16th. century economic philosophy Absolute advantage: Adam Smith, 1776 Comparative advantage: David Ricardo, 1817 Factor endowment theory: Heckscher-Ohlin, early 20th. cent International PLC: Raymond Vernon, 1960s The Internationalisation of the Firm: various