This document discusses several theories of international trade, including absolute advantage, comparative advantage, and factor endowments. It explains that absolute advantage suggests countries should specialize in goods they are most efficient at producing, while comparative advantage shows that trade can benefit all countries. The Heckscher-Ohlin model links trade patterns to differences in factors of production like capital and labor across countries. Later extensions address scale economies, product variety, and first-mover advantages in trade.

1. International Business
Chapter Six International Trade Theory

2. What is Free Trade?
Fuente: https://www.marketplace.org/2016/03/16/pm-trade-poll/

3. Mercantilism
Fuente: https://www.slideshare.net/saihemant/international-trade-theory-mercantilism

4. Fuente: https://pediaa.com/difference-between-absolute-and-
comparative-advantage/

5. Absolute Advantage
Adam Smith (1776) The Wealth of
Nations
• Absolute advantage
• Countries should specialize in the
production of goods for which they
have an absolute advantage and then
trade these goods for goods produced
by other countries
• Both countries benefit from
specialization and trade
Fuente: http://www.economicsdiscussion.net/theory-of-absolute-cost/adam-smiths-theory-of-absolute-cost-
advantage-economics/30675

6. Free Trade arguments
Fuente: https://www.thebalance.com/free-trade-agreement-pros-and-cons-3305845

7. Fuente: https://www.50minutes.com/title/the-theory-of-comparative-advantage/#iLightbox[]/0

9. Comparative Advantage
Qualifications and Assumptions
• Simple world with 2 countries and 2 goods
• No transportation costs
• No differences in price of resources
• Resources can move freely
• Constant returns to scale
• Each country has a fixed stock of resources and free trade does not
change the efficiency with which a country uses its resources
• No effects of trade on income distribution within a country

10. Extensions of the Ricardian Model
• Dynamic Effects and Economic Growth
• Trade can result in dynamic changes
• Free trade might increase a country’s stock of resources as increased
supplies of labor and capital from abroad become available for use within
the country.
• Free trade might also increase the efficiency with which a country uses
its resources.
• Dynamic gains in both the stock of a country’s resources and the efficiency
with which resources are utilized will cause a country’s PPF to shift outward.

11. The influence of free trade on the PPF
Fuente: International Business 12th Edition. Mc Graw Hill

12. Heckscher- Ohlin Model
Fuente: https://snbchf.com/economic-theory/comparative-cost-theory-heckscher-ohlin-model-product-lifecycle/

13. Factor Endowments

14. The Leontief Paradox
• Raised questions
about the validity
of the Heckscher-
Ohlin theory
• Found that U.S.
exports were less
capital intensive
than U.S. imports.

15. Vernon´s Product Life Cycle Theory

17. Economies of Scale

18. Increasing Product Variety and
Reducing Costs
• World without trade
• The variety of goods that a
country can produce and
the scale of production are
limited by the size of the
market.
• World with trade
• Individual national markets
are combined into a larger
world market.
• Each nation can increase
the variety of goods
available to its consumers
and lower the costs of those
goods.

19. First-Mover Advantages and the Pattern of Trade
Fuente: https://marketbusinessnews.com/financial-glossary/first-
mover-advantage-definition-meaning/

20. • Patterns of trade explain where
exports and imports, of one country,
go:
• The larger an economy is, more
exports and imports will make with
other economies, more likely with
countries with similar GDP´s
• Free trade helps to diversify a
country´s trade

21. Gravity Model of Trade (Tinbergen 1962)
Trade flow (F) between two countries (i and j)
depends positively on the respective size of the
economies and inversely with the distance between
them.
In broad terms we can think of distance as a proxy
for trade costs, which can have a significant impact
on cross-border flows.
Over the years, the basic equation has been
augmented with variables to take account of factors
such as shared borders, common language, colonial
links and whether they share some form of trade
agreement

22. Porter´s Diamond Model
Fuente: https://www.researchgate.net/figure/Porters-factor-conditions-expanded_fig4_324977945

23. Factor Endowments
Fuente: https://www.researchgate.net/figure/Porters-factor-conditions-expanded_fig4_324977945