Chapter 5 Student p10

Chapter 5 Student p10 - Chapter 5 International Trade...

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Chapter 5 International Trade Theory
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Classic Theories of Trade Mercantilism Absolute Advantage Theory of Comparative Advantage Heckscher-Olin Theory
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Contemporary Theories of Trade Product Life-Cycle Theory New Trade Theory National Competitive Advantage or Porter’s Determinants of National Advantage
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Factor Endowments Human resources: quantity, skills and cost of personnel Physical resources: abundance, quality, accessibility and cost of the nation’s land, water, timber, or other physical traits; climate, location
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Factor Endowments Knowledge resources: scientific, technical and market knowledge bearing on goods and services Capital resources: amount and cost of capital available to finance industry Infrastructure: type, quality and user cost of infrastructure (e.g., transportation, communications, mail)
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Factors of Production Basic Factors passively inherited or require only modest investment natural resources, climate, location and unskilled labor
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Factors of Production Advanced Factors require time and effort to develop and usually more relevant for competitive advantage highly skilled labor, communication infrastructure and education
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Factors of Production Generalized Factors can be used by many industrial sectors infrastructure system, capital markets
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Factors of Production Specialized Factors focused application opportunities skilled personnel in a specific industry specialized factors provide more decisive and sustainable bases for competitive advantage
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Mercantilism Theory contends a country should maintain a trade surplus to accumulate wealth by exporting more than it imports. Maximize exports through subsidies. Minimize imports through tariffs and quotas. Economists later argued that no country could sustain a surplus in the balance of trade in the long run.
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Theory of Absolute Advantage Countries should engage in trade when they have an absolute advantage in their ability to a produce good efficiently. A country should produce only goods where it is most efficient, and trade for those goods where it is not efficient.
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Theory of Absolute Advantage
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Demonstrates that countries can benefit from trade even if a country has an absolute advantage of production in all products. A country should specialize in the production of goods that it produces most efficiently and buy the goods it produces comparatively less efficiently from other countries. A nation may import products even when it has
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Chapter 5 Student p10 - Chapter 5 International Trade...

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