Peng Inst Chapter 5 REVISED (2nd Edition)

Peng Inst Chapter 5 REVISED (2nd Edition) - Peng...

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Peng  Global Business 2e  Chapter 5 Trading Internationally 1
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LEARNING OBJECTIVES After studying this chapter you should be able to: 1. Use the resource- and institution-based views to explain why  nations trade. 2. Understand classical and modern theories of international  trade. 3. Explain the importance of political and economic realities  governing international trade. 4. Participate in two leading debates on international trade. 5. Draw implications for action. 2
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WHY DO NATIONS TRADE? Although the text refers to “nations trading,” nations really  don’t trade, firms do. How do the resource and institutions views apply to trade? Valuable, rare, and inimitable products generated by  organizationally strong firms in one nation can lead to the  competitive advantage of a nation’s products. Institutions constrain firms e.g., rules in Canada, France, and  South Korea limit market share of American movies.   Other institutions such as the WTO facilitate trade.     3
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WHY DO NATIONS TRADE? Countries gain by selling products and services in which they have  an advantage producing and importing products and services in  which other countries have an advantage producing. Table 5.1 shows the top ten merchandise and service exporters  (the U.S. has merchandise deficit, but a services surplus). Trade deficit -  An economic condition in which a nation imports  more than it exports. Trade surplus -  An economic condition in which a nation exports  more than it imports. Balance of trade -  The aggregation of buying (importing) and  selling (exporting) by both sides leads to the country-level trade  surplus or deficit. 4
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THEORIES OF INTERNATIONAL TRADE Two groups of theories: Classical Trade Theories: 1. Mercantilism 2. Absolute Advantage 3. Comparative Advantage Modern Trade Theories: 1. Product Life Cycle 2. Strategic Trade 3. National Competitive Advantage 7
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Classical Trade Theories Mercantilism -  belief that the wealth of the world  (measured in gold and silver) was fixed, and that  a nation that exported more and imported less  would enjoy the net inflows of gold and silver and  thus become richer.   Protectionism -  idea that  governments should actively protect domestic  industries from imports and vigorously promote  exports. 8
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Classical Trade Theories Absolute Advantage  – advocated by Adam Smith in 1776.   Smith argued for free trade – the idea that free market forces  should determine how much to trade with little (or no) government  intervention. The theory of absolute advantage argues that under free trade, 
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Peng Inst Chapter 5 REVISED (2nd Edition) - Peng...

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