Theu.S. De La Madrid Of Mexico Essay

Theu.s. De La Madrid Of Mexico Essay
Case Study: In the 1980s Mexico was marked by inflation which caused a decline in standard of living. Much of the government's efforts in
addressing the challenges were placed on privatizing state industries and moving toward trade liberalization. Mexico began to reverse its protectionist
stance when the government was forced to declare that it was unable to repay its debts and had to default on its loans. The Mexican government
implemented a series of measures to restructure the economy that included progressed trade liberalization. President Miguel de la Madrid of Mexico
then took steps to open the economy. He did this by initiating procedures to replace import substitution policies with policies aimed at attracting foreign
investment, lowering trade barriers, and making the country competitive in exports. In 1987, Mexico and the United States entered into a mutual
understanding on trade and investment called the Framework of Principles and Procedures for Consultation Regarding Trade and Investment Relations.
Prior to this agreement, there had been no legal framework to govern commercial relations between the two countries. There were two parts to the
agreement, one served as a way to address trade issues, and the other established an agenda for the removal of trade barriers. Seven aspects were listed
in the agenda for possible future discussions; textiles, agriculture, steel, investment, technology transfer and intellectual property, electronics, and
information on the
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The Trade beyond Borders
Trade beyond borders Trade is the concept of the exchange of goods and services between entities or people. Trade exists since people or entities see the
need and the benefits they get from the exchange. International trade involves the exchange of capital, goods as well as services that takes place across
international territories or borders this is quite an important trade in most countries and contributes to a share that is significant in these countries Gross
Domestic Product (GDP). This trade has been present throughout much of the historical days furthermore its economic, political as well as social
importance has been on the rise in recent centuries. Advanced transportation, industrialization, globalization, multinational corporations as well as
outsourcing all has major impacts on the international trade and its increase is crucial for continued of globalization (Brown Consultancy Services,
2012).Without the existence of international trade then it would mean that many countries would have limited types of goods and services within the
borders of their countries. In the history of international trade there are various notable events that have had an effect on the trade between different
countries. In the period where there were no nation states, then the term international trade was not literally applicable but it was put in simple terms to
mean trade over long distances, this sort of movement of goods is what can be a representation of international trade in

Chapter 5
Chapter 5 Student: ___________________________________________________________________________ 1. The success of the rose industry in
Ecuador is a good example of the economic benefits of what? A. Free trade B. Restrictive government regulations C. New tax rules D. Technological
advancements E. Firm rivalry 2. Propagated in the 16th and 17th centuries, __________ advocated that countries should simultaneously encourage
exports and discourage imports. A. ethnocentrism B. capitalism C. collectivism D. nationalism E. mercantilism 3. Which of the following statements
accurately characterizes mercantilism? A. It is a new but largely discredited doctrine B. It is a new, highly credible doctrine C. It is an old yet highly
credible doctrine... Show more content on Helpwriting.net ...
David Ricardo 16. Which of the following international management scholars first argued that countries differ in their ability to produce goods
efficiently? A. David Ricardo B. Eli Heckscher C. Michael Porter D. Adam Smith E. Raymond Vernon 17. According to Smith, countries should
specialize in the production of goods for which they have an absolute advantage and then: A. retain these goods for strictly domestic sales B. trade
these goods for the goods produced by other countries C. sell these goods to the highest domestic or international bidder D. prohibit the import of
these goods from other countries E. stockpile these goods until international demand increases 18. __________ basic argument, articulated through
the theory of absolute advantage, is that a country should never produce goods at home that it can buy at a low cost from another country. A. David
Ricardo 's B. Michael Porter 's C. Bertil Ohlin 's D. Adam Smith 's E. John Vernon 's 19. _______ is a situation in which one country is more efficient
at producing a product than any other country. A. Absolute advantage B. Relative advantage C. Comparative advantage D. Pertinent advantage E.
Favourable factor endowment 20. In his 1817 book entitled Principles of Political Economy, __________ introduced the theory of comparative
advantage. A. Adam Smith B. David Ricardo C. Raymond Vernon D. Max Weber E. Michael Porter 21. A situation in which a country specializes in
producing the goods it produces most

The Smith's Theory Of Comparative Advantages: Challenges
Comparative Advantage: Challenges
Khalid Alshwaish
Saudi Electronic University Comparative Advantage: Challenges
The Smith's original theory of comparative advantage is commonly used to describe international trade and support the need for free trade policies. The
theory uses the concept comparative advantages in production to show the logic of specialization in production and use of resources. But despite the
benefits associated with comparative advantages, free trade policies are usually questioned, and nations try to avoid full specialization in their
production. Palley's observation on the modern international market contrasts Smith's original theory, by showing that it does not consider new
international market realities.
Smith's original theory on international trade follows the concept of division of labor at the local level and supports free international trade to
maximize production and benefits for all. His view is that division of labor is related to production, where an advanced division of labor is directly
related to increased and cost–effective production (Schumacher, 2012). As a result, it is possible to produce... Show more content on Helpwriting.net ...
The observation is that though there are gains in international trade, countries can suffer from further specialization as their gains from globalization
decline. Palley's view contrasts Smith's original theory by showing the challenges of continued globalization and international free trade on individual
nations. The original comparative advantage theory fails to capture the new realities created by globalization in international trade. The technology
mobility from one nation to another negates the need for specialization and production of surplus because markets can satisfy their needs. Additionally,
the transfer of technology is influenced by

Transformation of World Economy
The world economy is going through its biggest transformation in a relatively short period of time. There have been many explanations for this
phenomenon but the unprecedented scale and pace of this change and, most crucially, its implications, still seems little understood. In this essay I will
try to research on how existing economic theories reflect on world trade patterns changes and explain those changes. In order to be on the same page
about terms definition let's define what is stated under the "patterns of world trade". Global trade patterns are the trends that currently define
international trade (Britannica, 2013). In the other words, world trade patterns reflect ongoing changes in structure of the global economy. So that
means that world trade patterns show the shares of different countries in the world trade volume.
2.0.THE CHANGING PATTERNS OF WORLD TRADE DEFINITION
In order to analyze the extent to which economic theories effectively explain the changing patterns of world trade we need first to define these patterns.
To begin with, the decade 2001–2011 has witnessed serious changes in the patterns of international trade. After the secondary data research I came up
with three most crucial patterns which are defined below.
1.Over the course of the last decade, the world has witnessed the unprecedented changes in the patterns of international trade. First of all, the share of
the United States and the European Union combined in the world trade has decreased

The Economic Success Of The 21st Century
In the 21st century it is correct to claim that our interconnected world is becoming smaller. With globalization, the nature of economy and politics is
vividly transforming. United States is the best example as the trail blazer of the new policies, changes and with that, U.S. is a role model for world's
powers. Looking from the economist's perspective of how to explain such advantage, open door trade is one of the factors that explain its success.
Great number of economists stands unified in support of free trade. This paper will discuss some major points that revolve around the central idea which
explains that in order to achieve economic success in today's world requires free trade, which entails liberalization to attract international ... Show more
content on Helpwriting.net ...
(Krugman 1987,131) Free trade supporters make a point that if we don't move toward liberalization, the gravity of protectionism and political interests
will pull us back–"bicycle theory". (Bergsten 1996, 109). The successful example of bicycle moving forward is the Uruguay Round conclusion.
(Bergsten 1996, 109). Following that NAFTA and such, have made a significant progress in resolving debate in theinternational trade arena. Liberalist
economists insist that with openness toward international trade, countries benefit in multiple segments and knowledge is one of the major exchanges
which are crucial for improvement. ( O'Brien & Williams 2013,112) Therefore, it is important to understand liberalist perspective at first. Economic
liberalist view human nature acting rational in order to maximize their self–interest. This theory strongly support the thought where individuals when
acting rationally create markets which produce, distribute and consume goods function best free. This way international wealth is maximized with
exchange of goods and services which is also a comparative advantage based theoretical aspect. (Mingst &Toft, 2104, 310) With Ricardo's comparative
advantage, it's important to mention specialization of a commodity that a specific country can produce more efficiently in exchange for another
commodity.
Therefore,

International Trade Theory
International Trade Theory Chapter Outline OPENING CASE: The Ecuadorian Rose Industry INTRODUCTION AN OVERVIEW OF TRADE
THEORY The Benefits of Trade The Pattern of International Trade Trade Theory and Government Policy MERCANTILISM Country Focus: Is China
a Neo–Mercantilist Nation? ABSOLUTE ADVANTAGE COMPARATIVE ADVANTAGE The Gains from Trade Qualifications and Assumptions
Extensions of the Ricardian Model Country Focus: Moving U.S. White Collar Jobs Offshore HECKSCHER–OHLIN THEORY The Leontief Paradox
THE PRODUCT LIFE CYCLE THEORY Evaluating the Product Life Cycle Theory NEW TRADE THEORY Increasing Product Variety and
Reducing Costs Economies of... Show more content on Helpwriting.net ...
In addition, environmentalists worry that the industry is now following proprer safetyt precautions with the chemicals it uses. QUESTION 2:
Consumer groups in Europe have pushed for reforms to Ecuador's environmental regulations for its rose industry. Other groups have encouraged
trade sanctions to force Ecuadorian rose growers to be more environmentally responsible. Consider the impact these groups could have on Ecuador
and workers in the rose industry if they are successful in their efforts. ANSWER 2: In response to the suggestions of consumer groups in Europe,
some Ecuadorian rose growers have voluntarily joined a program certifying they are responsible growers. As part of the program , the growers must
supply workers with appropriate protective gear, train them in the proper use of chemicals, and hire doctors to visit workers on a weekly basis. Most
students will recognize that the cost of this type of program will affect the profits of growers, and could lead to layoffs within the industry, higher
prices for consumers, or both. Teaching Tip: For more information on the rose industry in Ecuador, visit {http://www.american.edu/TED/rose.htm}.
Chapter Outline with Lecture Notes and Teaching Tips INTRODUCTION A) This chapter has two goals. The first goal is to review a number of
theories that explain why it is

Paul Krugman 's New Trade Theory
Paul Krugman is well known for his New Trade Theory, International Trade Theory, and for his weekly columns in The New York Times. Krugman
has written more than twenty books and textbooks explaining economics for a general audience. Krugman is a Professor of Economics and
International Affairs at Woodrow Wilson School of Public and International Affairs at Princeton University and Centenary Professor at London School
of Economics. What is critical in Krugman's approach is he united two fields, which traditionally are separated– trade and geography. He has found a
way to explain some issues in economic geography by using the trade theory. He won a The Sveriges Riksbank Prize in Economic Science in Memory
of Alfred Nobel 2008 for his New Trade Theory and New Economic Geography. By examining the effects of economies of scale on consumers' goods
and services he is able to explain the patterns of international trade and the geographic concentration of wealth.
Krugman vouches that the economy isn't like a family that earns or spends a certain amount of money there's no relation between the two. "Your
spending is my income, and my spending is your income". If the people stop spending money, there's a depressed economy, although some people
would be spending money, it wouldn't be enough to save the economy causing unemployment to rise. When there's a depressed economy the
government isn't in competition with the private sector so the government doesn't use resources that would be

Which Provides A More Accurate View of the Global Economy
According to dependency theory, governance of the global economy has been marked by asymmetry and skewed in favour of developed countries
and multinational corporations while developing countries survive "at the margins". This essay will seek to examine the basis for this point by
extracting examples from the real world and comparing the theory with the neoliberal theory in providing a more accurate view of the global
economy. In defining the global economy, there are a few key ideas that one could adopt including dependency theory and neoliberal theory. In the age
of globalization, the global economy is conditioned by the innovation and production of manufactured goods. One of the backwashes of capitalism is
the birth of a global ... Show more content on Helpwriting.net ...
The NIEO aims at creating a balance and just trade system between countries in order to 'promote economic advancement and social progress of all
people' (UN–documents, 1974) by bringing into existence the importance of these commodities in world development and the rising of its global
prices so that it is relatively in accordance with the price of manufactured goods.
Prebisch states that international exploitation of trade is caused by the trade policies of the core states. International economic policies favour
countries in power subsequently resulting in the unfair exchange of trade (Craig, 2005). Therefore, trade barriers such as tariffs and taxes should be
implemented so that a certain amount of protectionism could be applied to the local market so that the level of imported goods could be balanced off
with the number of export together with local markets. In 1994, Canada along with US and Mexico signed the North American Free Trade Agreement
consequently becoming the largest free trade section the world has come to know (Foreign Affairs andInternational Trade Canada). However, recently
Canada saw significant drop in their local manufacturing of snow equipments because American products are allowed to enter the market duty

Difference Between Adam Smith And David Ricardo
Introduction
Wealth of Nations (1776) by Adam Smith and Principles of Economics (1951) by David Ricardo heralded the formulation international trade theories.
To Adam Smith it was the division of labor that reduces cost production and that would ensure competitiveness in the international markets. Smith
contended that the problem of monetary adjustment to countries having continuous trade surplus could be solved by automatic adjustments. Basic
premises of the trade theory were formulated by David Ricardo. Free trade theory as opposed to Mercantilists trade protection was championed by
Adam Smith and David Ricardo. For Smith and Ricardo free was mechanism to increase the productive efficiency at global level. Ricardo's cost
calculation was based ... Show more content on Helpwriting.net ...
When demand elasticity for the same good is different in different countries there is a possibility of subsidized exporting of goods. There is one
more possibility that there are some countries that are historically above others and have cost advantage of producing some goods and they can offer
goods at lower price than others. In such as situation countries will provide subsidies to industries whose cost of production is high to enable them to
reap the benefit of scale economies. This will pave ways for advanced countries to follow aggressive strategic trade. A vagary of history determines
what a country produces and exports rather the resources available. History and accident play a crucial role in determining the location of production in
the world map Krugman, 1994). Economists suggested that government come forward to shift resources from sunset industries to sunrise industry to
produce high value products.
Both the traditional free trade version and new international trade theories failed address the dynamic implication of trade opening in terms of
economic development and growth of the training partners, especially so for the developing countries. Unrealistic classical and more realistic new
version of trade theories failed to address the issue of economic development and growth which include, "viewing change by comparing static
equilibrium states, rather than as a process occurring in historical irreversible time (Bhattacharjea

Domestic And International Policy Formulation Essay
At the core of both domestic and international policy formulation is the underlying issue of the financial enrichment of the state structure and the
individual. It is undeniable that significant transformation of global economic norms has occurred since the advent of the neoliberal age in the mid
1970s, and the subsequent promotion of government non–intervention, deregulation and trade liberalisation. New Zealand's is no exception to this
trend, and our transition from British colony to independent constitutional monarchy with a unique set of values, ideologies and national identity
has paved the way for our nation to branch out into the newly expanded global market. Indeed, the development of New Zealand's domestic
economy and trade policy has undergone a seismic shift which has drastically altered our national patterns of trade since 1929. While export trade
to the East is still in its infancy, it is becoming increasingly clear that there is a growing demand in the East for New Zealand agricultural products
such as wool, meat, and dairy products. This essay aims to use the analysis provided by McNair in his article "New Zealand's Trade with the East" as
a comparative tool to describe the transition of the Eastern global region from one of New Zealand's least influential markets, to one of its greatest.
Furthermore, it aims to examine which economic theory best explains this increase in instances of trade over time, namely that of the Product Cycle
Theory. As such, the

Adam Smith And Ricardo's Theory Of Comparative Advantages
more than that produced by the competitors. The reason for that according to Smith is that it is impossible to all countries to achieve economic success
simultaneously by adopting mercantilism because the export of one country is another country's import and instead indicated that all countries would
achieve economic gains simultaneously if they adopted free trade and specialized in their most efficient production fields in accordance with their
absolute advantage. "Smith's theory is presented as the starting point of a theoretical development that leads directly to neoclassical trade models.
Smith's concerns and ideas are thus aligned with those of neoclassical trade theories. However, they are dwarfed by the theory of comparative
advantage, which is one of the most praised theories in economics". 3.2 Ricardo's Theory of Comparative Advantage: Comparative advantage theory
refers to a country's ability to produce a good at a lower opportunity cost than another country.... Show more content on Helpwriting.net ...
There is also David Ricardo's Comparative advantage theory which refers to a country's ability to produce a good at a lower opportunity cost than
another country. There is also mercantilism which states that nations should accumulate financial wealth usually in the form of gold by encouraging
exports and discouraging imports. Heckscher–Ohlin theory which states that countries should specialize in the production of goods that it is
particularly suited to produce. The Product life cycle theory which was developed by Raymond Vernon, to advance trade theory beyond Ricardo's static
framework of comparative advantages. It explains how trade patterns change over time. The stages are introduction, Growth, Maturity, and

Paul Krugman 's New Trade Theory
Paul Krugman
Paul Krugman is well known for his New Trade Theory, International Trade Theory, and for his weekly columns in The New York Times. Krugman
has written over a dozen books and textbooks explaining economics for a general audience. Krugman is a Professor of Economics and International
Affairs at Woodrow Wilson School of Public and International Affairs at Princeton University and Centenary Professor at London School ofEconomics.
What is critical in Krugman's approach is he united two fields, which traditionally are separated– trade and geography. He has found a way to explain
some issues in economic geography by using the trade theory. He won a The Sveriges Riksbank Prize in Economic Science in Memory of Alfred
Nobel 2008 for his New Trade Theory and New Economic Geography. By examining the effects of economies of scale on consumers' goods and
services he is able to explain the patterns of international trade and the geographic concentration of wealth.
Krugman vouches that the economy isn't like a family that earns or spends a certain amount of money there's no relation between the two. "Your
spending is my income, and my spending is your income". If the people stop spending money, there's a depressed economy, although some people
would be spending money, it wouldn't be enough to save the economy causing unemployment to rise. When there's a depressed economy the
government isn't in competition with the private sector so the government doesn't use resources that

International Trade : Economic Activity Of Nations
International trade is important to the overall economic activity of nations, including the growth and domestics' production. According to the United
Nations Conference on Trade and Development (UNCTAD) and WTO, international trade has grown remarkably in recent decades as shown in
figure 1 and 2. It can be seen that the growth of trade has led into the rapid economic growth in some countries. The reasons of rapid growth in world
trade is due to the reduction of trade barriers at global and regional level. The country also can gain from trade for some reasons. Firstly, trading leads
the country to produce and consume at prices which differ from those international market does, so if the price in international market is more
expensive,... Show more content on Helpwriting.net ...
He argued that trade can be beneficial because each country has a differentiation about the cost of producing different goods. Smith determined that
the dissimilarities of the cost of producing caused by the differences in efficiencies of labor in each country. Smith emphasized that the theory of
labor efficiencies lead into the absolute advantage of producing some goods. He argued that each country will have gain if only they exchange its
products which have an absolute advantage comparing with other countries. However, his theory seems not very deep (SoМ€dersten and Reed,
1994). Then, Ricardo was the person who completed Smith's theory by proposing the theory of comparative advantage. Ricardo argues that Smith's
theory is not suitable for a country which is more productive than other countries in all lines. Ricardo define that all countries have same
opportunities to pursue a benefit from trade as long as the country is not equally less productive in all lines (SoМ€dersten and Reed, 1994). In
Ricardo's model, a country has a comparative advantage in producing a good if the opportunity cost of producing the good is lower at home than in
host country, but to know the country has a comparative advantage in one good, there must be at least two countries and two goods (SoМ€dersten and
Reed, 1994). But, there are some criticisms on the theory of comparative advantage. Firstly, this

Doubts Over the Effectiveness of Free Trade Economic...
Paul Krugman's article "Is free trade passГ©?" (1987) espouses the argument that free trade economic theory today is "more in doubt than at any
time since the 1817 publication of Ricardo's Principles of Political Economy" (p. 131, citing Ricardo, 1821). Ricardo was the first to put forth the
theory that "[t]he value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour
which is necessary for its production, and not on the greater or less compensation which is paid for that labour" (Ricardo, 1821, p. 1.1). It was his
theory that specialization, even to the point of eliminating certain industries in a country, optimized a country's trade advantage (p. 31.17). As... Show
more content on Helpwriting.net ...
Increasing Returns and Imperfect Competition
New models of international trade, stressing increasing returns and imperfect competition, began to emerge in the 1970s:
These models immediately established the idea that countries specialize and trade, not only because of underlying differences, but also because
increasing returns are an independent force leading to geographical concentration of production of each good. Indeed, at a logical level, increasing
returns are as fundamental a cause of international trade as comparative advantage. (Krugman P. R., 1987, p. 133).
While this approach supported the existence of trade as opposed to no trade, it began to move away from free trade as the only answer in international
economic theory.
Consequently, while government intervention does not always work, it has become more of the norm in current international trade. However, as
Krugman points out, "[e]ven in a world characterized by increasing returns and imperfect competition, budget constraints still hold. A country cannot
protect everything and subsidize everything" (Krugman P. R., 1987, p. 140). Even within a country's internal economy, a government must determine
which industry or industries to favor in allocating resources, because international trade policy cannot favor every industry. Allocation of resources to
one industry must, of necessity, take away from other industries, and a policy that favors one must by

Difference Between Economy And Neoclassical Trade Theory
According to Adam Smith 1776) in...... a country has an absolute advantage in producing the product when it is more efficient in making that product
than any other country. If two countries specialise in producing different products and trade amongst themselves, both these countries will have more
of both products available to them for consumption (in which each has an absolute advantage) 2.2.Neoclassical Trade theory This is also known as
Comparative Advantage. (David Ricardo1817) stated that if one country has an absolute advantage in producing two products over another country,
trading with that other country will still yield more output for both countries than if the more efficient producer did everything for themselves. The
country with the absolute advantage... Show more content on Helpwriting.net ...
Heckscher–Ohlin Theory Comparative advantage comes up from differences in national factor endowments, such as land, labour, or capital, as
opposite to Neoclassical trade theory which stresses productivity of products being produced for consumption. This theory suggest that the country
should focus on exporting products using its scarce resources and brings across a free trade principle where goods will be moving freely without
any trade barriers implying that this would make flow of resources in and out more demand and more supply will increase the country's economy(Eli
Heckscher 1919 &Bertil Ohlin1933). 2.4.New Trade Theory Achievement of economies of in 1970's scale, trade can increase the different sorts of
goods available for consumption and those goods can be in a decreased affordable price. Further, the ability to capture economies of scale before
anyone else is an important first–mover advantage. Nations may benefit from trade even when they do not differ in resource endowments or
technology. This theory is not at risks with Comparative Advantage, since it identifies first mover advantage as an important source of comparative
advantage. 2.5.National Competitive Advantage – Porter's

Theories Of Comparative Advantage
1.4.2.2 Comparative Advantage:
Smith's assumption of invisible hands of the market was subjected to criticisms from the second half of the nineteenth century. Some of the critics were
related to the situation in which two countries might benefit from trade with each other although one holds an absolute advantage over the other in the
production of all goods. The explanation of this situation became known as the "theory of comparative advantage". According to Ricardo if a country
does not have an absolute advantage in any good, this country and all other countries would benefit from international trade, in which each country
specializes in the production of those goods in which they have the greatest absolute advantage or the least absolute disadvantage (Husted & Melvin,
2007, pp. 60–61).
1.4.3 Neo–classical Theories:
Neo–classical theories developed during the second half of the nineteenth century. According to neo–classical economics, there are suggestions that the
price of a commodity is not determined only by the cost of production but also by the utility obtained by the consumer.
1.4.3.1 Pure Trade Theory:
Neo–classical economics embraced ... Show more content on Helpwriting.net ...
One idea that has received increasing attention by economists is the role of increasing returns to scale in the production process. When allowing for
increasing returns to scale, firms will have incentives to expand their output. The expansion by some firms will eventually force others to exit the
market, causing the number of firms in the market to decline. In monopolistic competition, there are many firms, and entry into the industry is free,
unrestricted and each producing a variety of differentiated goods. So, opening up trade between two countries in monopolistic competition models
results in the decline in the number of firms on the market, while the remaining firms, and output increases, exploiting economies of scale (Brobely,
2006, pp.

The World Trade Organization and The Theory of Absolute...
Why the famous theory of absolute and comparative advantages did not work when the GATT and WTO were created?
In the world of internationalization and globalization, which worships money and encourages ever growing trade, it is very difficult to find a model
and further implement it into the modern system so that it would be efficient, eco–friendly and yet economically viable for all participants. Most
suggested models are in my opinion out of date and do not answer the current world trends and challenges. And surely the trade system we have at the
moment cannot claim to be free.
Under globalization, all national economies are integrated into one global economy and must obey the laws laid down by a global economic
institution–currently ... Show more content on Helpwriting.net ...
The Bretton Woods Institutions were than set up. It was also decided that the International Monetary Fund (IMF) would mainly focus on short–term
balance–of–payments financing (the current account of the balance of payments), while the International Bank for Reconstruction and Development
(World Bank) would concentrate on long–term lending (the capital account).
That function, however, was largely taken over by the Marshall Plan, leaving the World Bank to focus almost entirely on lending for the development
of underdeveloped countries.
The General Agreement on Trade and Tariffs (GATT) was signed in 1947 as a global international organization that specifies and enforces rules for the
conduct of international trade policies and serves as a forum for negotiations to reduce tariffs and other barriers to international trade.
In 1995, it was replaced by The World Trade Organization (WTO) with a striking 146 members. The WTO is frequently lumped together with the
World Bank and IMF, because the three institutions have common policy goals of so–called free trade, free capital mobility, and export–led growth – in
other words, globalization [2].
The GATT was only about trade of goods between countries and it's rules focused on tariffs and quotas– traditional trade measures. A tarriff being a
tax charged when a good crosses a border and a qouta – a quontitative limit about how much of an import a country will take. This was the

Pecking & Trade Off Theory
Analyse the pecking order and the trade–off theories of capital structure and assess the extent to which these are supported by the empirical evidence.
Pecking Order – Introduction
The pecking order theory ( Donaldson 1961) of capital structure is among the most influential theories of corporate leverage. The pecking order theory
is based on different of information between corporate insiders and the market. According to Myers (1984), due to adverse selection, firm prefer
internal to external finance. If internal finance proves insufficient, bank borrowings and corporate bonds are the preferred source of external source of
finance. After exhausting both of these possibilities, the final and least preferred source of finance is ... Show more content on Helpwriting.net ...
For example, if the public thinks that the firm's prospects are rosy but the managers see trouble ahead, these managers would view their debt–as well as
their equity–as being overvalued. That is, the public might see the debt as nearly risk– free, whereas the mangers see a strong possibility of default.
If external financing is required, the "safest" securities, namely debt, are issued first. Although investors fear mispricing of both debt and equity, the
fear is much greater for equity. Corporate debt still relatively little risk compared to equity because, if financial distress is avoided, investors receive a
fixed return.. Thus, the pecking order theory implies that, if outside financing required, debt should be issued before equity. Only when the firm's debt
capacity is reached should the firm consider equity.
Also, the stock market tends to react negatively to announcements of new common stock offerings, whereas debt security announcement tend to have
little impact on stock prices. As a additional external financing is needed, the firm will work down the pecking order – from safe to more risky debt,
then possibly to convertible debt, and finally to common equity as a last resort.
Empirical Specification
A recent strand of the empirical literature attempts to design a test for the pecking order (Shyam–Sunder and Myers, 1999; Frank and Goyal, 2003;
Watson and Wilson,2002;Lemmon and Zender,2003). Shyam–Sunder and Myers(1999)

Is Free Trade PassГ©? Essay
"Free trade is not passГ©, but is an idea that has irretrievably lost its innocence" (Krugman, 1987, p.132). In his article, Is Free Trade PassГ©, Paul
Krugman writes that the classical trade theory has been replaced with a new trade theory. The classical trade theory is based on constant returns to
scale and perfect competition, is driven by comparative advantage, and endorses free trade. This classical theory emphasized the idea that trade was
brought about by differences in tastes, technology, or factor endowments between countries (Krugman, 1987). However, the new theory ofinternational
trade is driven by increasing returns to scale, also known as economies of scale, and leads to imperfect competition (Carbaugh, 2011). ... Show more
However, it was apparent to economists that nations with similar resource endowments exchanged similar products with each other. Economists felt
that trade explained solely by comparative advantage was an incomplete analysis of international trade. Furthermore, since the classical trade theory
was unable to explain intraindustry trade, economists decided to expand on the classical trade theory by creating a new theory of trade (Carbaugh,
2011). The new theory states that economies of scale provide incentive for a country to specialize in a particular product (Carbaugh, 2011).
Furthermore, based on economies of scale, nations with similar factor endowments will trade with each other as sometimes it is beneficial (Carbaugh,
2011). Arguments stemming from this new trade theory puts the economic case for free trade in doubt. Krugman presents two arguments against free
trade based on the new trade theory. The first argument that opposes free trade is strategic trade policy. When a nation employs a strategic trade policy,
the nation's government subsidizes its firm's production of a particular good in an industry that can only support a few firms because of substantial
economies of scale. By supporting its firm in international competition, the nation could potentially shift excess returns from foreign to domestic
through an export subsidy. Strategic trade policy asserts that a country can raise its national income at another country's

What Is Pecking Order Theory
Pecking order theory
Effective financial management and what characters affect their capital structure are important for a firm to obtain better operational performance. A
false decision about the capital structure may lead to financial distress and even to bankruptcy. There are numerous theories developed to analyze
alternative capital structures. Among all these theories, the static trade off theory which derived by Modigliani and Miller (1963) was the earliest and
most recognized which explains the formulation of capital structure. Their trade off theory assumed that there are optimal capital structures by trading
off the benefits and cost of debt and equity. The main benefit of debt is tax deductibility of interest and the costs are bankruptcy... Show more content
on Helpwriting.net ...
The pecking order theory stems from Myers (1984) who in turn was influenced by the earlier institutional literature including the book by Donaldson
(1961). Myers (1984) argues that adverse selection implies that retained earnings are better than debt and debt is better than equity. This ranking was
motivated with reference to the Myers and Majluf's (1984) adverse selection model. The ordering, however, stems from a variety of sources including
agency conflicts and taxes.
Pecking order theory also referred to as information asymmetry theory was proposed by Ross (1996), Fama & French (2004) suggests that firms prefer
to finance new investments, first internally with retained earnings, then with debt and finally with the issue of new equity. The pecking–order theory is
based on two assumptions: Firstly, according to informational asymmetry, managers are better informed about their own firms' prospect than are
outside investors. So, when they decide to issue new equity to finance new projects it is almost invariably taken by outside investors as a signal that
the firm's prospects, as seen by management, are not good and that the said issue is therefore overvalued and therefore causes the firm's share price to
fall (Ross,

Examples Of Peeking Order Theory
Peeking Order Theory
Based on the finance dictionary, a peeking order theory means an argument that external financial financing transactions, especially those related to
poor selection of issues, create a dynamic environment where firms have a priority, or borrow a financial source, when all others are the same.
Internally generated funds are the most popular funds, followed by new debt, and debt equity grants. Finally, new equity is the least important source.
Order theory assumes that there is no target capital structure. Due to the weak selection, the firm chose internal for external finance. When external
funding is needed, firms prefer debt to equity as information related to debt issues is low cost. This theory emphasizes that businesses must comply
with hierarchy and internal funding sources if available, and debts are preferred over equity ... Show more content on Helpwriting.net ...
The static trading theory and pecking order theory are two financial principles that help companies choose their capital structure. Both play the same
role in the decision–making process depending on the type of capital structure the company wishes to achieve. However, empirically the pecking order
theory is most widely used in determining the company's capital structure.
Static trading theory is a theory of finance based on the work of economists of Modigliani and Miller. With the theory of static trading, and since
corporate debt repayment is a deductible tax and there is less risk involved in taking debt on equity, debt financing is initially cheaper than equity
financing. This means that companies can reduce the weighted average cost of capital (WACC) through capital structure with debt on equity. However,
increasing the amount of debt also increases the risk to the company, somewhat offsets the WACC decline. Thus, static trading theory identifies a mix
of debt and equity where the WACC decline offsets the increased financial risk to the

Why Do Business Internationalise?. International Trade
Why do business internationalise?
International trade can be traced back to ancient years. Our ancestors, with the purpose of increasing the variety of local products, had been trying their
best for decades to trade cross border. With the development of international business, international trade theories was developed to explain the benefit
nations can get from utilizing free trade pattern and participating in the multilateral trade via opening up strategy by eliminating import control, export
support and other types of anti–trade approaches (Georges, 2013, pp213–231). In this essay, two major parts of the evolution of international trade
theory (traditional international trade theory and new international trade theory) were compared and ... Show more content on Helpwriting.net ...
Like Smith's and Ricardo's theory, Heckscher–Ohlin claims that every country engaging in free trade gain advantage. Unlike Ricardo's theory,
Heckscher–Ohlin stresses that the major determinants that form the law of trade theory is factor endowment, instead of difference in productivity
(Hill, 2012).
Compare and Contrast Among New International Trade Theories
After World War II, with the appearance of multinational corporations, intra
–industry trade and the increase of horizontal trade within developed
countries, some situations can no longer be explained by traditional theory. Such as why United State who is abundant in capital imports more
capital–insentive goods than its export of that (known as Leontief Paradox). During that time, new international trade theory enslaved the global
market, among which, new trade theory points out that a firm's ability to attain economies of scale and to enter an new market first gain advantage of
trading abroad over other countries. Following that, Porter's new comparative advantage theory states that the competitiveness of a firm in an industry
bases on the combination of four mutually reinforcing attributes containing firm characteristics, demand condition, factor endowment, related and
supporting industries. New trade theory stresses the role of luck and capacity of innovation, while Porter's theory states that a firm's competitive
performance results from four components

Over Concentration Of Services Essay
This study identifies four strands of thought that outline the factors which can lead to the over–concentration of services; traditional trade theory, new
trade theory, new economic geography theory and the interplay between globalisation and competition. It is from this four factors in which the negative
effects of the over–concentration of services are created. These negative effects will be discussed and analysed in a bid to understand what can done to
reduce them. Polycentricity and territorial cohesion policy, and the measures associated with their implications, are identified as the tools for reducing
the negative effects of over–concentration. The study also questions the extent of success of these tools. Europe is viewed as the best platform to
comprehend the relevant concepts and thus will provide the context in which to carry out the study.
Traditional trade theory explains the over–concentration of services through variations in labour skills and other contributions to production
(Heckscher 1919; Ohlin 1933), or in productivity (Ricardo 1917). These differences establish 'comparative advantages' (Ricardo 1917) between cities,
regions and countries. Thus, trade allows the concentration of services to grow and shrink in reaction to these advantages.
In reality, cities, regions and countries may have different production arrangements but similar production technologies (Krugman 1991a). Post–Fordist
countries predominantly trade goods of a similar product type, i.e.

The World May Never Know
Madelyn Russo
Mrs. Seidel
English 2
4 May 2015
9/11: The World May Never Know As defined by Merriam–Webster Dictionary, a conspiracy theory is "a theory that explains an event or situation as
the result of a secret plan by usually powerful people or groups." Conspiracy theories can be found all over the world.They are an inevitable part of
society. As long as mankind exists, conspiracy theories will as well. The main things that people form conspiracy theories around are things such as
government operations, the deaths of famous people, and national tragedies. Staying true to this statement, one of the most prominent national
tragedies that isconspired about all over the world is the series of attacks on the World Trade Centeron September 11, 2001. There are many
conspiracy theories concerning 9/11. These theories include the proposals that 9/11 was faked and that the planes were actually missiles. Some
conspirators even go as far as saying that the planes were just projections from a hidden projector device. Out of all of these conspiracy theories, the
most plausible of all is the one that states that the twin towers did not just randomly collapse. This theory states that the twin towers were demolished
with the use of explosives. Society will never be able to be fully certain about the events that occurred on that horrid day. With signs pointing to both the
affirmative and the negative, one cannot be certain of whether or not this conspiracy theory is true.

International Trade Will Improve The United Economy
Several theories exist that take different approaches on what imports and exports would produce the best outcome for a given country. Countries have
to specialize on certain goods in order to have a strong impact in the global trade. Many have argued that imports can have a negative impact on
domestic products. Even though this is true, I believe that promoting free trade will improve the U.S. economy in the long run and that the benefits
outweigh the costs. Firstly, an open market is when there are no restrictions on international trade. In other words, there are no tariffs or quotas
interfering with the exported products. An advantage to eliminating restrictions on trade are that it supports innovation. If there is more competition for
products on the market, then companies will invest in ways to produce a product more efficiently. This leads to new technological advancements which
will help the country expand to new limits on the international market. Likewise, free trade will lead to higher quality products at low prices. This
happens as a result of competition from international companies producing the same product. Consumers clearly benefit from these advantages while
infant companies are at a disadvantage having to compete with older companies. A few disadvantages to promoting deregulated trade are that new
domestic companies may have a difficult time competing with international companies. Many domestic companies may run out of business if they are

The Theory Behind Absolute Advantage
Over many years there has been many conceptual theories devised to help explain the reasons why there is trade within the world accompanied by
the possibilities that gains could or could not be made. This piece of work will examine four main theories put forward by Adam Smith (Absolute
advantage, 1776) which was then expanded on by David Ricardo with his theory of the Ricardian Model (Comparative advantage, 1817). Also including
the Heckscher–Ohlin model (relative factor abundance, 1919, 1933) and the ideas of New Trade Theory (Economies of Scale and Imperfect
Competition). These ideas will be evaluated and synthesised to see if these explanations truly explain the reasons of trade theory.
Absolute advantage was an idea suggest by Adam Smith in 1817. The theory behind absolute advantage suggests that if a country is highly skilled
and efficient in producing a certain good with the fewer resources, then it is believed that a specific country has an absolute advantage in the
production of that good (Sloman&Garratt, 2013). However Absolute advantage can only occur if the country using its resources for a specific good
/service does so efficiently otherwise no gains are made from trading. Although it can be argued that the idea of Absolute advantage does not
particularly make much sense in explaining trade patterns. As said in Feenstra's and Taylors book, Absolute advantage does not particularly help to
explain the case of why the US imports snowboards from places like China

Summary Of Adam Smith And David Ricardo
Adam Smith and Principles of Economics by David Ricardo represented the formulation of international trade theories. To Adam Smith it was the
absolute advantage of one country. Also, the labor side in Smith opinion that reduces the cost of production, and that would ensure competitiveness in
the international markets. David Ricardo expressed basic assumptions of the trade theory. Free trade theory, as opposed to Mercantilists trade
protection, was supported by Adam Smith and David Ricardo. For Smith and Ricardo free was mechanism to increase the productive efficiency at
global level. Ricardo's cost calculation was based on labor hours factor on production. In Ricardo model, there were two commodities and production of
that were subjected to constant returns to scale. Comparative advantage was considered to increase and befit from trade. Ricardo's indicate specialization
... Show more content on Helpwriting.net ...
When demand elasticity for the same good is different in different countries, there is a possibility of subsidized exporting of goods. There is one
more possibility that there are some countries that are historically above others and have a cost advantage of producing some goods, and they can
offer products at lower price than others. In such as a situation, countries will provide subsidies to industries whose cost of production is high to enable
them to obtain the benefit of scale economies. This will pave ways for advanced countries to follow aggressive strategic trade. Sunanda Sen wrote, It
was generally recognized that the "vagaries of history" rather than resources determine what a country produces and exports. Thus the role of "history
and accident" were both considered crucial in determining the location of an industry in the world map (Krugman 1994)(Sunanda Sen,2010).
Economists suggested that the government comes forward to shift resources from sunset industries to sunrise industry to produce high–value

Essay about The New Trade Theory
New Trade Theory
The new trade theory began to emerge in the 1970s when a number of economists pointed out that the ability of firms to attain economies of scale
might have important implications for international trade (Wickramasekera, Cronk & Hill 2013). This theory is based on two major concepts that are
economies of scale and first–mover advantage. To elaborate: "Economies of scale are unit cost reductions associated with a large scale of output" as it
is able to spread over the fixed costs over a large volume of quantity (Wickramasekera, Cronk & Hill 2013 p90). "First–mover advantages are the
economic and strategic advantages that accrue to early entrants into an industry and the ability to capture scale economies ahead of later ... Show more
Further more, with other benefits such as low costs in research and development, strong clinical research capabilities, and low sovereign risk, Australia
is advancing as one of the most prominent players in the pharmaceutical industry (Productivity Commission 2003). Australia's population represents
0.3% of the world's population and consumes around 1% of the total global pharmaceutical sales. The industry generated a total revenue of $6.1 billion
in the year 2002 (ALRC 2014).
The research and development of the pharmaceutical industry is very important as the industry relies on it to develop new products to maintain and
sustain the growth of the industry (ALRC 2014). According to the Australian Government Law Reform Commission, every year, the total spending in
research and development in pharmaceutical industry, which includes drug discovery, pre–clinical testing and clinical trials on drugs is around $300
million (ALRC 2014). Mergers and acquisitions are intensifying in the global pharmaceutical industry, especially over the last 10 years. With factors
like exorbitant research and development costs, the relatively shorter product life cycles, and the rarity of discovering a new life–changing drug acting
as catalysts, leading pharmaceutical companies now have more cause to step out and look for external collaboration. This results in an increasing
number of smaller biotechnology companies merging with bigger pharmaceutical companies (The

Advantages Of Comparative Advantage
Rashed Humod Alqhtany
Module 03: Critical Thinking
Comparative Advantage: Challenges
Theory of Comparative Advantage
One of the most powerful propositions of classical trade theory is that the pattern of international trade is determined by comparative advantage. That
is, a country with the comparative advantage in a given commodity exports, and the other with the comparative disadvantage imports. Adam Smith has
founded the comparative advantage originates theory, and there have been numerous attempts to identify the economic conditions that determine
comparative advantagelet us began with Adam Smith theory, and then we will discuss one correction of this theory was founded by Palley's (2008),
which is an observation the modern view of comparative advantage.
Smith's original theory was discussed and compared to its representation in modern textbooks. It was shown that these textbooks do not reproduce
Smith's ... Show more content on Helpwriting.net ...
In the 18th century world, trade was driven by the search for exotic spices and raw materials. In that epoch, climate and naturalresource endowments
significantly determined the pattern of comparative advantage [in a traditional sense]4 , and little could be done to alter this pattern. In todayвЂџs
economy, comparative advantage [in a broader sense] is driven by technology, and technology can be importantly influenced by human action and
policy."endowments and trade volumes, it is possible to explain the large volume of North–North trade with the conventional model based on the
concept of comparative advantage. That is, the traditional notion of comparative advantage can still be the main theoretical explanation for the pattern of
international trade, although the emergence of the New Trade Theory put an equal importance on increasing returns of scale as much as on comparative
advantage in a traditional sense. (De Benedictis and Tamberi,

Emerging Economies And Globalization Of India And China
: Emerging Economies and Globalization
There are many factors involved when a company makes a strategic choice to enter into a new market. These factors include strategic market
position, resource availability, human capital, as well as financial gains and efficiencies. For General Electric Healthcare (GEH), the strategy was
clear: "...to revolutionize the world's health by improving the quality, access and affordability of care." (GE Healthcare, n.d.) For GEH, the position
that they needed was clear, to find a cost effective way to meet their goal. And their choice was to expand their operations into India and China.
Specifically, according to Kumar (2012), India is on the brink of an innovation boom where many companies like GEH are establishing operations due
to the influx of talented human capital.
"...talent is going to be based out of India and China, and the largest growth markets are going to be based out of India and China, you have to confront
the problem that your top management of the future is going to have to come out of India and China, because that 's where the product leadership is,
that 's where the important market leadership is." (Kumar, 2012)
Therefore, it makes logical sense that GEH made the decision to expand its operations into these two countries. The question now is to define the
strategy and trade theory in which this decision was based as well as understand why these theories were used.
International trade theories are constantly changing due to

The Argument Of Mercantilism's Theory Of Feudalism
At end of the seventeenth century Mercantilism is that ancient trade thought existing in the world. Commercial revolution argument trade was one of
typical explanation of mercantilism trade thought. According to mercantilist, the concept of the commercial revelation means the way of
transformation, that transform the market characteristic from local economic to national economic, from feudalism to capitalism and from small scale
trade to large scale trade. The philosophers of mercantilism they strongly suggest that if a country will gain from the international trade by, will promote
the export performance and limited import. This would have a positive gain for country gain thought trade. An accumulation precious metal (gold) was
the main ... Show more content on Helpwriting.net ...
As pointed out by Sodersten and Reed(1994), this is a theory of long–term general equilibrium in which two factors of production labour and capital
are both mobile between sectors. Hereafter, further theory came which described the "new growth theory". It originated from the mechanism through
which exports affect economic growth. For instance, Grossman and Helpman (1990) proposed a two–country growth model with endogenous
technological progress. In their model, exports help to promote technology and knowledge diffusion and thus in recent period, the extensive literature
concerning the relationship between trade and growth is also the consequence of the many changes that have taken place in the fields of development
economics and international trade policy. An example of these changes is the tremendous modification from inward oriented policies to export
promotion strategy. By the early 1980s export–led orientation and export promotion had already secured a wide consensus among researchers and
policy makers, to such an extent that they had become "conventional wisdom" among most economists in the developing world (Tyler, 1981; Balassa,
1985). This strategy is still advocated by some international organizations, the international bank community and multilateral lenders such as the World
Bank and the International Monetary Fund (IMF), and among the mainstream policy makers.

The Impact Of Government Intervention On International...
Perfect competition brings out the idea of traditional trade theory and free trade is seemed the optimal policy. However the theory did not applied
perfectly in the reality of international trade, which masses of intra–industry trade and trade between similar countries are under imperfect competition.
(Brander, 1995) Therefore the idea of strategic trade policy arises. In this essay game theory and oligopoly theory are going to be used to illustrate the
application of government intervention to support domestic firms. Moreover, the impact of government intervention in international trade under perfect
competition will be outline for a comparison with that of imperfect competition, and an insight of to what extent the game theory and oligopoly theory
support a greater degree of government intervention in international trade will be shown.
According to "The New Palgrave Dictionary of Economics", the definition of strategic trade policy is trade policy that "affects the outcome of
strategic interactions between firms in an actual or potential international oligopoly." (Durlauf and Blume, 2008) It is basically a policy to shift profits
from foreign to domestic firms in order to improve domestic welfare. For example, government intervention to subsidise domestic firms is an
application of strategic trade policy. The term 'strategic' in the context is not related to military purposes but to strategic interactions between firms.
(Durlauf and Blume, 2008) For further explanation of

New Trade Theory : International Patterns Of Trade
During the 16th mid–century Mercantilism concept was followed. This concept says (one country should accumulate wealth in form of gold) that
maximize exports through subsidies, minimize imports through tariffs and quotas. According to this concept any import is to be avoided. The term
"NEW TRADE THEORY" describes relations among natural country returns, government actions and industry features that enable such exchanges to
occur. As a result output increases with knowledge, an industry's capacity to understand the economies of scale rises and unit cost decreases. Because
of such economies of scale world demand chains only a few firms in some industries. New Trade Theory recommends that a serious issue in defining
international... Show more content on Helpwriting.net ...
Finally trade has become more concentrated among the industrialised nations. Helpman and Krugman pointed that the conventional trade models like
Heckscher–ohlin model cannot explain these facts. "These........empirical weakness of conventional trade theory..........becomes easy only if the
economies of scale and imperfect competition are brought into the analysis" said by them. Paul Krugman gave the example that one could say that
the conventional theory views the world as taking place in goods like Wheat; In New Trade Theory could be seen in goods like aircraft. From the year
1950–1990, the ratio of trade to gross domestic has enlarged by 86.1%. In 1961 the facts that incorporated by the model was , the world was very poor
than in 1990 and the consumption of manufactured goods and the distribution of income was much more than in 1990.This new theory generalises
,fluctuations in relative prices to have bigger effect on trade volumes. The deviations in the level of income among industrialised countries, accounts the
observed expansion of trade relative to income. United States of America contributed much of world's income and consumption during post world war
period. Some applications of this theory Competitors merge because of "First –mover advantage", in this role of government becomes significant. It
generates government intervention and strategic trade policy.

International Trade : A New Concept
International trade is focused on the exchange of goods, services and capital across national borders. According to Ball et al. (2012) international trade
brings many benefits to the consumer, such as larger variety of products and services, on the other hand also benefits the country's economy such as
creation of jobs, innovation or reduction of poverty.
World Trade Organisation (2013:online) proposes that merchandise exports of WTO members totalled US $17.3 trillion in 2012 and export of
commercial services totalled US $4.25 trillion in 2012 and suggests that size of the international trade continues to increase. The top five world's
merchandise exporters are Germany, United States, China, Japan and France, in addition world's top five service exporters are United States, United
Kingdom, Germany, Japan and France (Wild et al., 2010). The concept of trade and international trade is not a new concept, it occurred many
thousands of years ago (Schmitz and Schmitz, 2014).
Figures for international trade– why is it important
Make sure you understand the main theories of trade –– neoclassical comparative advantage and 'new trade theory ' (and whilst Porter 's Diamond
Model isn 't formally a theory of trade, there are a number of ways in which it overlaps with theories of trade, particularly new trade theory). The
reading material, particularly the textbook book chapters I have included on the list, discuss these various theories and the implications for 'free ' or
'managed

International Trade Theories Essay
International Trade Theories Mercantilism
Mercantilism was a sixteenth–century economic philosophy that maintained that a country's wealth was measured by its holdings of gold and silver
(Mahoney, Trigg, Griffin, & Pustay, 1998). This recquired the countries to maximise the difference between its exports andimports by promoting
exports and discouraging imports. The logic was transparent to sixteenth–century policy makers–if foreigners buy more goods from you than you buy
from them, then the foreigners have to pay you the difference in gold and silver, enabling you to amass more treasure. With the treasure acquired the
realm could build greater armies and navies and hence expand the nation's global influence. ... Show more content on Helpwriting.net ...
In An Inquiry into the Nature and Causes of the Wealth of Nations (1776), Smith attacked the intellectual basis of mercantilism and demonstrated that
mercantilism actually weakens a country. Smith maintained that a country's true wealth is measured by the wealth of all its citizens, not just that of its
monarch (Mahoney, Trigg, Griffin, & Pustay, 1998).
A country is said to be more productive than another country, if it can produce more output (goods) for a given quantity of input, such as labour or
energy inputs. An example is that there are only two countries, Australia and Japan. They both produce computers and wine, and only one factor of
production, labour. Japan produces 6 computers for every 1 bottle of wine, where as Australia produces only 4 computers for every 3 bottles of wine.
This suggests that Australia should export some of its wine to Japan, and Japan should export some of its computers to Australia. Australia has an
absolute advantage over Japan, when producing wine, and Japan has an absolute advantage over Australia, when producing computers (Gandolfo,
1998).
Economists use the term absolute advantage when comparing the productivity of one person, firm or nation with that of another. The producer that
requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good (Gans, King, & Mankiw, 1999).
Comparative Advantage
The

Has The Predictions Of Customs Union? Essay
The Customs Union comprises of two or more countries, which have removed tariff barriers between themselves to; improve welfare, increase
economic efficiency, eliminate border restrictions, establish closer political, cultural ties and to keep a common external tariff against other countries
(Hazelwood: 1987). This essay aims to analyse and evaluate 'to what extent' has the predictions of customs union (CU) theory been supported by the
empirical evidence in Europe. Furthermore, this paper shall explore the problems of empirically testing the CU theory. A customs union is a
membership of countries who have formed a regional trade agreement with themselves, involving common external tariffs (CET), thus ensuring the
same tax is on imports from countries that are not part of the membership (Hazelwood, 1987). The customs union theory deals with 'country
discrimination' when products have different tariffs applied to them from products coming from a different country of origin. So, therefore, it may be
argued that the customs union theory is a branch of tariff theory, which discriminated trade barriers geographically. The basic theory of CU comprised
of three partners; the rest of the world, home and the partner country. The predictions were markets were of pure, perfect competition, resources were
fully used, elimination of transportation costs, trade is balanced, and there are zero value adjustment procedures. However the problem with empirical
testing these predictions is

International Trade Theories That Can Be Analyzed
International Trade Theories
There are a number of different trade theories that can be analyzed in regards to the above referenced research project, and I will attempt to address
the theories I feel that are most relatable to the question in hand. The first international trade theory I will address is that of Mercantilism. Historically,
mercantilism is defined as
"the economic theory that trade generates wealth and is stimulated by the accumulation of profitable balances, which a government should encourage
by means of protectionism". (Vocabulary.com, 2016) Today it has been suggested that mercantilism is the belief in the benefits of profitable trading;
commercialism, and that it is the basis upon which all future strategic operations made money for countries in the Asia Pacific.
The next international trade theory to be addressed is the Porter's Diamond, also known as the National Competitive Advantage. The Porter's Diamond
strategy seeks to answer the question of why a nation achieves international success in a particular industry. (Harvard Business Review, 1990). When
analyzing this theory there are number of factors that need to be taken into consideration, however what is notable is that basic factors such as climate
and location are among those most important. To be more specific, a automobile company wishing to expand into a different country, would not want
their factory to be inland, practically it makes more sense to have a factory close to port, in order for

The Pecking Order Theory: Effective Financial Management
Pecking order theory Effective financial management and what characters affect their capital structure are important for a firm to obtain better
operational performance. A false decision about the capital structure may lead to financial distress and even to bankruptcy. There are numerous
theories developed to analyze alternative capital structures. Among all these theories, the static trade off theory which derived by Modigliani and
Miller (1963) was the earliest and most recognized which explains the formulation of capital structure. Their trade off theory assumed that there are
optimal capital structures by trading off the benefits and cost of debt and equity. The main benefit of debt is tax deductibility of interest and the costs
are bankruptcy cost (Kim, 1978) and agency cost (Jesen and Meckling, 1976; Myers, 1977). However, recent studies have shown a focus shift from
the trade off theory to pecking order theory (Quan, 2002; Mazur, 2007).... Show more content on Helpwriting.net ...
A wrong decision about the capital structure of their firm can leads towards the financial distress as well as towards bankruptcy. There are various
theories to analyze capital structure. Among all these theories the trade off theory which derived by Modigliani and miller (1963) was the earliest and
most recognized which explains the formulation of capital strcture. He consider taxation and suggested that the firm should carried debt as much as
possible. Companies has an edge in using debt rather than using internal capital as the gain benefit from tax shield. It allows the firm to pay lower tax
than they have. When using more debt than capital it created more firm

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