100%(1)1 out of 1 people found this document helpful
This preview shows page 35 - 37 out of 61 pages.
●Forerunner of the free trade movement.●Defeats mercantilism, at least intellectually.●When one nation is absolutely inferior than another, the theory is unable to provide any advice.●When there are many nations, it may be difficult to find an absolute advantage.Comparative advantage (Ricardo, 1817; Heckscher, 1919; Ohlin, 1933)●Nations should specialize in economic activities in which they have a comparative advantage and trade with others.●Even if one nation is absolutely inferior to another, the two nations can still gainfully trade.●Factor endowments underpin comparative advantage.●More realistic guidance to nations (and their firms) interested in trade but having noabsolute advantage.●Explains patterns of trade based on factor endowments.●Relatively static, assuming that comparative advantage and factor endowments do not change over time.Modern theories Product life cycle (Vernon, 1966)●Comparative advantage first resides in the lead innovation nation, which exports to other nations.●Production migrates to other advanced nationsand then developing nations in different product life cycle stages.●First theory to incorporate dynamic changes in patterns of trade.●More realistic with trade in industrial products in the 20th century.●The United States may not always be the lead innovation nation.●Many new productsare now launched simultaneously around the world.Strategic trade (Brander, Spencer, ●Strategic intervention by governments may ●More realistic and positively ●Ideological resistance from
Krugman, 1980s)help domestic firms reap first-mover advantages in certain industries.●First-mover firms, aided by governments, may have better odds at winning internationally.incorporates the role of governments in trade.●Provides direct policy advice.many “free trade” scholars and policymakers.●Invites all kinds of industries to claim they are strategic.National competitive advantage of industries (Porter, 1990)●Competitive advantage of different industries in different nations depends on the four interacting aspects of a“diamond.”●The “diamond” consists of●(1)●factor endowments,●(2)●domestic demand,●(3)●firm strategy, structure, and rivalry,and●(4)●related and supportingindustries.●Most recent, most complex, and most realistic among various theories.●As a multilevel theory, it directly connects firms, industries, and nations.●Has not been comprehensively tested.●Overseas (not only domestic) demand may stimulate the competitiveness of certain industries.TARIFF BARRIERS ●tariff barrier – trade barrier that relies on tariffs to discourage imports ●Who has to pay the tax? ○The consumer!!! ○The only penalty of import tariffs is that the consumers have topay higher prices ●import tariff – a tax imposed on imports ●deadweight cost – net losses that occur in an economy as a result of tariffs ●Tarriffs cause net losses by making the market inefficient NONTARIFF BARRIERS (NTBs) ●nontariff barrier (NTB) – trade barriers that rely on nontariff means to discourage imports ●TYPES OF NONTARIFF BARRIERS