International_Trade_Theories

International_Trade_Theories - Agenda - Classical trade...

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International Trade Theories Agenda - Classical trade theories: - Explain national economy conditions--country advantages--that enable such exchanges to happen - You should have studied the classical trade theories in your economics courses; review again on your own. - New trade theories: - Explain links among natural country advantages, government action, and industry characteristics that enable such exchange to happen - Today’s thinking International Trade Theories - Mercantilism - Absolute Advantage - Comparative Advantage - Heckscher-Ohlin Theory - Product Life Cycle Theory - New Trade Theory - Porter’s Diamond Mercantilism: 1500 to 1800 - A country will gain wealth when exports exceed imports - Goals: - To earn gold & silver - Gain wealth = store of government’s gold & silver - Have a trade surplus [not the current U.S. situation] - Maximize exports through subsidies - Limit imports through tariffs and quotas, or other methods - Flaw: a “zero-sum game”
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David Hume on Mercantilism: 1752 - Is maintaining a trade surplus a feasible goal? - Increased wealth (gold) and increased exports ultimately leads to growth and inflation - Imports keep inflation low - Result: A country initially exporting ultimately becomes importer because of changes in relative prices - In the long run, no one can keep a trade surplus - Anyway, there is no fixed pie of wealth
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Is the Mercantilist Theory still valid? A
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International_Trade_Theories - Agenda - Classical trade...

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