Chapter_5_Outline - INTERNATIONAL TRADE THEORY Chapter...

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INTERNATIONAL TRADE THEORY Chapter Outline OPENING CASE: The Ecuadorian Rose Industry INTRODUCTION AN OVERVIEW OF TRADE THEORY The Benefits of Trade The Pattern of International Trade Trade Theory and Government Policy MERCANTILISM Country Focus: Is China a Neo-Mercantilist Nation? ABSOLUTE ADVANTAGE COMPARATIVE ADVANTAGE The Gains from Trade Qualifications and Assumptions Extensions of the Ricardian Model Country Focus: Moving U.S. White Collar Jobs Offshore HECKSCHER-OHLIN THEORY The Leontief Paradox THE PRODUCT LIFE CYCLE THEORY Evaluating the Product Life Cycle Theory NEW TRADE THEORY Increasing Product Variety and Reducing Costs Economies of Scale, First Mover Advantages and the Pattern of Trade Implications of New Trade Theory
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NATIONAL COMPETITIVE ADVANTAGE: PORTER’S DIAMOND Factor Endowments Demand Conditions Related and Supporting Industries Firm Strategy, Structure, Rivalry Evaluating Porter’s Theory Management Focus: The Rise of Finland’s Nokia FOCUS ON MANAGERIAL IMPLICATIONS Location First-Mover Advantages Government Policy Learning Objectives 1. Understand why nations trade with each other. 2. Be familiar with the different theories explaining trade flows between nations. 3. Understand why many economists believe that unrestricted free trade between nations will raise the economic welfare of all countries that participate in a free trade system. 4. Be familiar with the arguments of those who maintain that government can play a proactive role in promoting national competitive advantage in certain industries. 5. Understand the important implications that international trade theory holds for business practice.
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Chapter Summary This chapter focuses on the benefits of international trade and introduces several theories that help explain the patterns of international trade that are observed in practice. The discussion begins with an explanation of the theory of mercantilism, and then proceeds to discuss the theories of absolute advantage and comparative advantage. Four additional theories are discussed, including the Heckscher-Ohlin theory, the product life cycle theory, the new trade theory, and the theory of national competitive advantage. Each of these theories helps explain why certain goods are (or should be) made in certain countries. The chapter ends by discussing the link between the theories of international trade and (1) a firm’s decision about where (in the world) to locate its various productive activities, (2) the importance of establishing first-mover advantages, and (3) government trade policies. Chapter Outline with Lecture Notes and Teaching Tips INTRODUCTION A) This chapter has two goals. The first goal is to review a number of theories that explain why it is beneficial for a country to engage in international trade. The second goal is to explain the pattern of international trade that is observed in the world economy. Lecture Note:
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This note was uploaded on 04/24/2010 for the course ECON 12123 taught by Professor Donald during the Spring '10 term at Johnson County Community College.

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Chapter_5_Outline - INTERNATIONAL TRADE THEORY Chapter...

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