export goods in which you are the worlds most efficient producer import goods

Export goods in which you are the worlds most

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export goods in which you are the world’s most efficient producer; import goods where others are more efficient. => gains for both (all) countries CLASSIC TRADE THEORY (3) David Ricardo (1817) Further refinement: comparative advantage: relative efficiency in producing product X Specialisation and trade → gains from trade for both (all) countries Need not be the first-, second- or even third-best producer of particular products to benefit from international trade Focused initially on natural advantages (e.g. fertile land, abundant minerals, favourable climate…) but later on acquired advantages (innovative technology, production expertise…)
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LISA YANG IBUS20002 Business in the Global Economy New trade theory (Paul Krugman) (1) Recognition of “quirks” in trade patterns (e.g. trade between countries with similar factors of production) In select industries where economies of scale are important, only a few profitable firms can exist on a global basis (e.g. aviation, pharmaceutical firms,..) → intensive capital investment Firms that have first mover advantage in these industries will develop economies of scale as a competitive advantage and create barriers to entry for other firms First mover advantage -- lower cost on the basis of economies of scale (as well as learning effect) Barriers to entry (late movers find it difficult to compete) => for these industries, national markets are too small for EoS → Export Suggests that nations may benefit from trade even when they do not (originally) differ in resource endowments or technology A country may come to dominate 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 first mover advantage becomes a comparative advantage often construed as a role for government intervention to protect industries/firms where first mover and EoS advantages are important → especially infant industries to grow competitive advantage Paul Krugman: successful government intervention difficult to achieve in reality: invites retaliation and so stronger argument for trade liberalisation. Porter’s “Diamond” of national competitive advantage Why do firms from a particular nation achieve global leadership in particular industries? E.g. German luxury car firms; French & Italian high-end fashion houses; Japanese camera companies; UK and US advertising and law firms Favourable conditions in the domestic environment spur firms in particular industries to develop superior capabilities that allow them to successfully compete globally.
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