theory lessons week 4 and 5 Ritsema

theory lessons week 4 and 5 Ritsema - Classification of...

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Classification of countries in the international economics 1) industrial countries 2) developing countries 3) NICs (newly industrialized countries) 1
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Why do countries trade? Easy answer; in order to be able to buy products as cheap as possible International trade theories: 1) absolute advantage (Smith 1776) 2) comparative advantage (Ricardo 1817) 3) Hecksher-Ohlin (1930s) 4) Product-life cycle (modern theory) All four theories favour “free trade” above “protectionism”! 2
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“COMPARATIVE ADVANTAGE” THEORY suppose we have only two countries, Europe and Japan suppose the two countries have about the same size suppose Japan (or rather Japanese companies) can make any product more cheaply / efficiently than Europe is it now “good” for Japan that all European companies are going bankrupt? Answer; NO! Theory of comp.adv. says; in such a case, Japan should specialise in producing those products where Japan has the highest advantage; Japan should import other products from
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This note was uploaded on 05/30/2011 for the course MIM 1001 taught by Professor Fredser during the Spring '11 term at International University in Germany.

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theory lessons week 4 and 5 Ritsema - Classification of...

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