Theories of International Trade and Investment

1. Theories of International Trade and Investment Chapter 3

2. International Trade Theory • Mercantilism • Goals • Effects on today • Economic nationalism • Theory of Absolute Advantage • Adam Smith • Specialize

3. International Trade Theory • Heckscher- Ohlin Theory of Factor Endowment • Countries export • Countries import • Assumptions • Perfect market • Technology • Leontief Paradox • U.s. is capital-intensive • Why? • Outcome • Differences in Taste • Money can change flow of trade • Exchange rates • Currency devaluation

4. International Trade Theory • New Explanations for Direction of Trade • Economies of scale and experience curve • Why? • First-mover theory • Linder Theory of Overlapping Demand • Manufacturing goods • Income levels

5. International Product Life Cycle • What is it? • Exports imports • Process • U.S. exports • Foreign production begins • Foreign competition in export markets • Import competition in U.S. • Technology Life Cycle • U.S develops • Other developed • Developing

6. Porter’s Competitive Advantage of Nations • What is it? • Factors • Demand conditions • Factor conditions • Related and supporting industries • Firm strategy, structure, and rivalry

7. Summary • Differences in endowments of factors of production • Differences in level of technology • Differences in efficiencies with which factor intensities are utilized • Foreign exchange rates

8. Trade Restrictions • Arguments for Restriction • National Defense • Sanctions to Punish Offending Nations • Protect Infant Industries • Protect Declining Industries • Protect Domestic Jobs • Scientific Tariff or “Fair Competition” • Retaliation • Dumping • Five types • Subsidies • Countervailing duties

9. Trade Barriers • Tariffs • Ad valorem • Specific duty • Compound duty • Official prices • Variable levy • Lower duty for more local input

10. Trade Barriers • Nontariff Barriers • Quantitative • Quotas • Absolute • Tariff-rate • Global • Voluntary export restraints • Orderly marketing arrangements • Multifiber Arrangement

11. Trade Barriers • Nontariff Barriers • Nonquantitative • Direct government participation in trade • Agriculture procurement policies • Government procurement policies • 1920 Jones Act • Customs and other administrative procedures • Standards • Managers must be aware of barriers!!!!!!

12. Trade Barriers • Multinational Global Manufacturing Systems • Two options • Costs of Barriers • Consumer costs

13. Economic Development • Categories • Developed • Developing • New Industrialized Countries • Three characteristics • Newly Industrialized Economies • IMF Classifications • World Bank • GNP/capita • Problems with that • Underground market • Exchange rates • Purchasing power parity • Atlas conversion factors

14. Characteristics of Developing Nations • 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

15. Human-Needs Approach • Goals • Human Development Index • Investment in Human Capital • Return

16. International Investment Theories • Monopolistic Advantage Theory • Product and Factor Market Imperfections • International Product Life Cycle • Other Theories • Follow-the-leader theory • Cross investment • Internationalism theory • Dunning’s Eclectic Theory of International Production • Ownership-specific • Internalization • Location-specific