DONE—Chapter 5—International Trade Theory

DONE—Chapter 5—International Trade Theory

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
BusAdm 555—Exam 2: Chapter 5—International Trade Theory 4 Ideas Behind International Trade Power/Wealth Capabilities/Specialization Trust Growth/Development Trade Balance Balance of trade = Exports – Imports Surplus: Exports > Imports Deficit: Exports < Imports U.S.—Deficit in manufacturing, surplus in services, large deficit overall. Free Trade The absence of government-imposed barriers, such as quotas or duties, that impede the free flow of goods and services between countries—is good New Trade Theory (1970s) Suggests: 1. Because of economies of scale, trade can increase the variety of goods available to consumers and decrease the average cost of those goods. 2. In those industries when the output required to attain economies of scale represents a significant proportion of total world demand, the global market may only be able to support a small number of firms. Implications: —Nations may benefit from trade even when they do not differ in resource endowments or technology. —A country may predominate in the export of a good simply because it was lucky enough to have one or more firms among the first to produce that good. Provides an economic rationale for a proactive trade policy that is at variance with other free trade theories. Recognizes importance of externalities in international specialization and trade—Government policies, Political relations, Historical background, Consumption differences between cultures. Theorists promote the idea of strategic trade policy—Argument is that government, by the sophisticated and judicious use of subsides, might be able to increase the chances of domestic firms becoming first movers in newly emerging industries. Externalities Could be the factors that influence the pattern of international trade, NOT comparative advantage. Mercantilism Theory of international trade—asserted that it is in a country’s best interest to maintain a trade surplus, to export more than it imports —Mid-16 th Century. Advocated government intervention to achieve a surplus in the balance of trade. Viewed trade as a zero-sum game.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/08/2010 for the course BUS ADM 555 taught by Professor Makhidja during the Fall '09 term at Ohio State.

Page1 / 3

DONE—Chapter 5—International Trade Theory

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online