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Flashcards in Trade Theories & Competitivness Deck (8)
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1

Classical trade theories (2)

-Mercantilism
-Comparative Advantage

2

New trade theory

- Critical factor of determining international trade patterns is the economies of scale and networks effects that can occur in key industries
- Secialization increases output and the ability to enhance economies of scale
- World demand will support few competitors
- First mover advantage, competitors may emerge of "the got there first"
- First mover could scale up very fast
- Role of government is very important: policies/governance, institution etc, infrastrucre, education
- Importance of location economy

3

Mercantilism

A country will gain wealth when exports exceed imports

4

Goals of mercantilism (5)

-To earn gold & silver
-Gain wealth = store of government's gold and silver
-Have a trade surplus
-Maximize exports through subsidies
-Limits imports through tariffs and quotas, or other methods.

5

David Hume on Mercantilism: 1752 (4)

-Increased wealth(gold) and increased exports ultimately leads to growth and inflation.

-Imports keep inflation low

-Results: A country initially exporting ultimately becomes importer because of changes in relative prices.

-In the long run, no one can keep a trade surplus

6

Is the mercantilist theory still valid? Where?

A qualified yes.
Especially in the court of public opinion.

7

Neo-mercantilists =

protectionists

8

Comparative Advantage

- Ability to produce goods at lower opportunity cost than of trade with partner
- Sell for less than competitors with higher margin
--> BUT: world does not exist of 2 countries and two goods, no transportation cost assumed