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Theories of Global Trade and Investment: Chapter No: 3

This document outlines several theories of global trade, including: - Mercantilism, which views trade as a zero-sum game where countries aim to accumulate gold/silver by exporting more than importing. - Absolute and comparative advantage theories, which argue that countries gain from specializing in and trading goods they have an absolute or comparative advantage in producing. - Factor endowments theory, which claims countries export goods intensive in their abundant factors and import goods intensive in scarce factors. - Product lifecycle theory, which describes the stages of new, mature, and standardized that products move through as they are traded internationally. - National competitive advantage theory focusing on factors that influence competition between local firms.

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Kashif Illahi Rajper
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89 views10 pages

Theories of Global Trade and Investment: Chapter No: 3

This document outlines several theories of global trade, including: - Mercantilism, which views trade as a zero-sum game where countries aim to accumulate gold/silver by exporting more than importing. - Absolute and comparative advantage theories, which argue that countries gain from specializing in and trading goods they have an absolute or comparative advantage in producing. - Factor endowments theory, which claims countries export goods intensive in their abundant factors and import goods intensive in scarce factors. - Product lifecycle theory, which describes the stages of new, mature, and standardized that products move through as they are traded internationally. - National competitive advantage theory focusing on factors that influence competition between local firms.

Uploaded by

Kashif Illahi Rajper
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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THEORIES OF GLOBAL TRADE AND INVESTMENT

CHAPTER NO: 3

Part I

The International Financial Environment


Multinational Corporation (MNC)

Foreign Exchange Markets

Exporting & Importing

Dividend Remittance & Financing

Investing & Financing

Product Markets

Subsidiaries

International Financial Markets

TRADE THEORIES
Mercantilism Absolute advantage Comparative advantage Factor Endowments theory The product lifecycle theory National competitive Advantage

1. MERCANTALISM
1st international theory emerged in England in mid-16th century. Gold and silver are the medium of exchange and trade Country could earn Gold and Silver by exporting goods. The doctrine of mercantilism explains Zero-sum game.

THEORY OF ABSOLUTE ADVANTAGE


Proposed by Adam Smith. Countries differ in their ability to produce goods efficiently. The principle of Positive sum-game. Potential gain from trade due to absolute advantage

THEORY OF COMPARATIVE ADVANTAGE


Advantage arise from difference in productivity
Ricardo argued that country should produce those goods which it can produce most efficiently.

Reinforced the principle of positivegame.

FACTOR ENDOWMENT THEORY


BY Swedish economist Eli Heckscher and Bertil ohlin. Different nations have different factor endowments and different factor endowments explain difference in factor costs. Countries will export those goods that make intensive use of locally abundant and viceversa.

THE PRODUCT LIFE CYCLE THEORY


International product lifecycle theory (IPLC) has three stages 1. New product stage 2. Mature product stage 3. Standardized product stage

NEW PRODUCT

MATURING PHASE

STANDARDISED STAGE

The International Product Life Cycle


Firm creates product to accommodate local demand. Firm exports product to accommodate foreign demand. Firm establishes foreign subsidiary to establish presence in foreign country and possibly to reduce costs.

a. Firm differentiates product from competitors and/or expands product line in foreign country.

or b. Firms foreign business declines as its competitive advantages are eliminated.

NATIONAL COMPETITIVE ADVANTAGE


By Michael porter of Harvard Business school in 1990. Four broad attributes of a nation shape the environment in which local firms compete.
1. 2. 3. 4. Factor endowment Demand conditions Related and supporting industries Firms strategy, structure and rivalry

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