This document summarizes several theories of international trade, including:
- Mercantilism, which held that nations should maximize exports and minimize imports to accumulate wealth. Jean-Baptiste Colbert was a prominent proponent.
- Adam Smith's theory of absolute advantage, which argued nations should specialize in what they produce most efficiently and trade.
- David Ricardo's theory of comparative advantage, which showed that free trade benefits all nations by allowing them to specialize according to their relative costs of production.
- The Heckscher-Ohlin theorem, which posits that countries will export goods that intensively use their abundant and cheaply available factors of production.
2. Theories of International Trade, Tariff and Non-tariff barriers and Trade ...Charu Rastogi
This presentation starts with an overview of the initial theories of international trade like mercantilism, theory of absolute advantage, theory of comparative advantage and factor proportions theory. It goes on to discuss trade barriers, tariff and non-tariff barriers and trade blocks.
The theory of comparative advantage, first developed by English economist David Ricardo in 1817, is a theory about the potential gains from trade for companies, countries or people that arise on account of differences in factor endowments or technological progress.
The trade theory that first indicated importance of specialization in production and division of labor is based on the idea of theory of absolute advantage which is developed first by Adam Smith in his famous book The Wealth of Nations published in 1776.
Smith argued that it was impossible for all nations to become rich simultaneously by following mercantilism because the export of one nation is another nation’s import and instead stated that all nations would gain simultaneously if they practiced free trade and specialized in accordance with their absolute advantage. Smith also stated that the wealth of nations depends upon the goods and services available to their citizens, rather than their gold reserves. While there are possible gains from trade with absolute advantage, the gains may not be mutually beneficial. Comparative advantage focuses on the range of possible mutually beneficial exchanges.
Adam Smith argued that a country has an absolute advantage in the production of a product when it is more efficient than any other country producing it.
Countries should specialize in the production of goods for which they have an absolute advantage and then trade these goods for the goods produced by other countries
In economics, principle of absolute advantage refers to the ability of a party (an individual, or firm, or country) to produce more of a good or service than competitors, using the same amount of resources.
International trade is the exchange of capital, goods, and services across international borders or territories.
international trade has existed throughout history (for example Uttarapatha, Silk Road, Amber Road, salt roads), its economic, social, and political importance has been on the rise in recent centuries.
To understand the pattern in international trade, Different trade theories are postulated. Some famous trade theories are:
Mercantilism
Absolute Advantage Theory
Comparative Advantage Theory
Hecksher-Ohlin Factor endowment theory
Product Life Cycle Theory
New Trade Theory
Porter’s Diamond Theory for competitive advantage
Restrictions on imports – tariff barriers, quotas or non-tariff barriers.
Accumulation of foreign currency reserves and gold and silver reserves. (known also as bullionism)
Granting of state monopolies to particular firms especially those associated with trade and shipping.
Subsidies of export industries to give competitive advantage in global markets.
Government investment in research and development to maximize efficiency and capacity of domestic industry.
Allowing copyright / intellectual theft from foreign companies.
Limiting wages and consumption of the working classes to enable greater profits to stay with the merchant class.
Control of colonies, e.g. making colonies buy from Empire country and taking control of colonies wealth.
England Navigation Act of 1651 prohibited foreign vessels engaging in coastal trade.
All colonial exports to Europe had to pass through English first and be re-exported to Europe.
Under British Empire, India restricted in buying from domestic industries and were forced to import salt from the UK. Protests against this salt tax, led to ‘Salt tax’ revolt led by Gandhi.
In seventeenth Century France, the state promoted a controlled economy, with strict regulations about the economy and labour markets
In the modern world, mercantilism is sometimes associated with policies, such as.
Undervaluation of currency e.g. government buying foreign currency assets to keep the exchange rate undervalued and make exports more competitive.
Government subsidy of industry for unfair advantage. China has been accused of offering too much subsidised investment for industry, leading to over supply of industries such as steel – meaning other countries struggle to compete.
Surge of protectionist sentiment, e.g. tariffs on imports.
Copyright theft
international trade theory
,
why is free trade beneficial
,
what role does government have in trade
,
what is mercantilism
,
what is the heckscher-ohlin theory
,
how does the theory of absolute advantage work
,
is a current account deficit bad
,
what is smith’s theory of absolute advantage
,
what is the balance of payments
,
what is new trade theory
,
what is ricardo’s theory of comparative advantage
2. Theories of International Trade, Tariff and Non-tariff barriers and Trade ...Charu Rastogi
This presentation starts with an overview of the initial theories of international trade like mercantilism, theory of absolute advantage, theory of comparative advantage and factor proportions theory. It goes on to discuss trade barriers, tariff and non-tariff barriers and trade blocks.
The theory of comparative advantage, first developed by English economist David Ricardo in 1817, is a theory about the potential gains from trade for companies, countries or people that arise on account of differences in factor endowments or technological progress.
The trade theory that first indicated importance of specialization in production and division of labor is based on the idea of theory of absolute advantage which is developed first by Adam Smith in his famous book The Wealth of Nations published in 1776.
Smith argued that it was impossible for all nations to become rich simultaneously by following mercantilism because the export of one nation is another nation’s import and instead stated that all nations would gain simultaneously if they practiced free trade and specialized in accordance with their absolute advantage. Smith also stated that the wealth of nations depends upon the goods and services available to their citizens, rather than their gold reserves. While there are possible gains from trade with absolute advantage, the gains may not be mutually beneficial. Comparative advantage focuses on the range of possible mutually beneficial exchanges.
Adam Smith argued that a country has an absolute advantage in the production of a product when it is more efficient than any other country producing it.
Countries should specialize in the production of goods for which they have an absolute advantage and then trade these goods for the goods produced by other countries
In economics, principle of absolute advantage refers to the ability of a party (an individual, or firm, or country) to produce more of a good or service than competitors, using the same amount of resources.
International trade is the exchange of capital, goods, and services across international borders or territories.
international trade has existed throughout history (for example Uttarapatha, Silk Road, Amber Road, salt roads), its economic, social, and political importance has been on the rise in recent centuries.
To understand the pattern in international trade, Different trade theories are postulated. Some famous trade theories are:
Mercantilism
Absolute Advantage Theory
Comparative Advantage Theory
Hecksher-Ohlin Factor endowment theory
Product Life Cycle Theory
New Trade Theory
Porter’s Diamond Theory for competitive advantage
Restrictions on imports – tariff barriers, quotas or non-tariff barriers.
Accumulation of foreign currency reserves and gold and silver reserves. (known also as bullionism)
Granting of state monopolies to particular firms especially those associated with trade and shipping.
Subsidies of export industries to give competitive advantage in global markets.
Government investment in research and development to maximize efficiency and capacity of domestic industry.
Allowing copyright / intellectual theft from foreign companies.
Limiting wages and consumption of the working classes to enable greater profits to stay with the merchant class.
Control of colonies, e.g. making colonies buy from Empire country and taking control of colonies wealth.
England Navigation Act of 1651 prohibited foreign vessels engaging in coastal trade.
All colonial exports to Europe had to pass through English first and be re-exported to Europe.
Under British Empire, India restricted in buying from domestic industries and were forced to import salt from the UK. Protests against this salt tax, led to ‘Salt tax’ revolt led by Gandhi.
In seventeenth Century France, the state promoted a controlled economy, with strict regulations about the economy and labour markets
In the modern world, mercantilism is sometimes associated with policies, such as.
Undervaluation of currency e.g. government buying foreign currency assets to keep the exchange rate undervalued and make exports more competitive.
Government subsidy of industry for unfair advantage. China has been accused of offering too much subsidised investment for industry, leading to over supply of industries such as steel – meaning other countries struggle to compete.
Surge of protectionist sentiment, e.g. tariffs on imports.
Copyright theft
international trade theory
,
why is free trade beneficial
,
what role does government have in trade
,
what is mercantilism
,
what is the heckscher-ohlin theory
,
how does the theory of absolute advantage work
,
is a current account deficit bad
,
what is smith’s theory of absolute advantage
,
what is the balance of payments
,
what is new trade theory
,
what is ricardo’s theory of comparative advantage
Theories of International trade gives a brief account on what different theories are being used in the industry and by countries in understanding the behavior of exports & imports of commodities.
Fiduciary or paper money is issued by the Central Bank on the basis of
computation of estimated demand for cash. Monetary policy guides the Central
Bank’s supply of money in order to achieve the objectives of price stability (or low
inflation rate), full employment, and growth in aggregate income.
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http://sandymillin.wordpress.com/iateflwebinar2024
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Knowledge and skills frameworks, generally called competency frameworks, for ELT teachers, trainers and managers have existed for a few years now. However, until I created one for my MA dissertation, there wasn’t one drawing together what we need to know and do to be able to effectively produce language learning materials.
This webinar will introduce you to my framework, highlighting the key competencies I identified from my research. It will also show how anybody involved in language teaching (any language, not just English!), teacher training, managing schools or developing language learning materials can benefit from using the framework.
This is a presentation by Dada Robert in a Your Skill Boost masterclass organised by the Excellence Foundation for South Sudan (EFSS) on Saturday, the 25th and Sunday, the 26th of May 2024.
He discussed the concept of quality improvement, emphasizing its applicability to various aspects of life, including personal, project, and program improvements. He defined quality as doing the right thing at the right time in the right way to achieve the best possible results and discussed the concept of the "gap" between what we know and what we do, and how this gap represents the areas we need to improve. He explained the scientific approach to quality improvement, which involves systematic performance analysis, testing and learning, and implementing change ideas. He also highlighted the importance of client focus and a team approach to quality improvement.
The French Revolution, which began in 1789, was a period of radical social and political upheaval in France. It marked the decline of absolute monarchies, the rise of secular and democratic republics, and the eventual rise of Napoleon Bonaparte. This revolutionary period is crucial in understanding the transition from feudalism to modernity in Europe.
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The Roman Empire, a vast and enduring power, stands as one of history's most remarkable civilizations, leaving an indelible imprint on the world. It emerged from the Roman Republic, transitioning into an imperial powerhouse under the leadership of Augustus Caesar in 27 BCE. This transformation marked the beginning of an era defined by unprecedented territorial expansion, architectural marvels, and profound cultural influence.
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2. Mercantilism
• Mercantilism was the primary
economic system of trade used from
the 16th to 18th century.
Mercantilist theorists believed that
the amount of wealth in the world
was static. Thus, European nations
took several strides to ensure their
nations accumulated as much of this
wealth as possible.
• The goal was to increase a nation's
wealth by imposing government
regulation that oversaw all of the
nation's commercial interests. It was
believed national strength could be
maximized by
limiting imports via tariffs and
maximizing exports.
3. Jean-Baptiste Colbert: The
Champion of Mercantilism
• French Secretary of State Jean-Baptiste Colbert (1619-1683)
was one of the most influential proponents of mercantilism .
• He was also a devout monarchist and wanted an economic
strategy to protect the French crown from a rising Dutch
mercantile class.
• Colbert increased the size of the French navy on the premise
that his country would have to take control of trade routes to
increase its wealth.
• Even though his practices were ultimately unsuccessful, his
ideas became hugely popular until the theory of free market
economics was popularized.
4. • Mercantilism was popularized in Europe during the 1500s.
• Mercantilism replaced the older, feudal economic system in
Western Europe, leading to one of the first occurrences of
political oversight and control over an economy.
• At the time, England, the center of the British Empire, was
small and contained relatively few natural resources. Thus, to
grow England’s wealth, England introduced fiscal
policies, including the Sugar Act and Navigation Acts, to
move colonists away from foreign products and create another
incentive for buying British goods.
• The resulting favorable balance of trade was thought to
increase national wealth.
5. Affect of Mercantilism on British
Colonies
• Controlled production and trade
• The expansion of the slave trade
• Inflation and taxation
• American Revolution
6. Criticism of Mercantilism Theory
• Mercantilism is a philosophy of a zero sum game – where
people benefit at the expense of others. It is not a philosophy
for increasing global growth and reducing global problems.
Also, increasing other peoples wealth can lead to selfish
benefits, e.g. growth of other countries, increases markets for
our exports. Trying to impoverish other countries will harm
our own growth and prosperity.
• Mercantilism which stresses government regulation and
monopoly tends to lead to inefficiency and corruption.
• Mercantilism justified Empire building and the poverty of
colonies to enrich the Empire country.
7. • Economist Adam Smith, who is widely considered the father
of modern economics, argued in his seminal book "The Wealth
of Nations" that free trade enables businesses to specialize in
the production of the goods that they manufacture most
efficiently.
• Specialized production leads to economies of scale which, in
turn, lead to higher productivity and economic growth. In a
free trade system, businesses have incentives to be innovative.
By creating more useful products, better production and
distribution systems, and more efficient operations, businesses
can grow and prosper.
8. Justification for Mercantilism
• Tariffs in response to domestic subsidies
• Protection against dumping
• Infant industry argument
• Today, mercantilism is considered an outdated philosophy.
However, barriers to trade still exist to protect locally
entrenched industries.
• For example, the United States adopted a protectionist trade
policy toward Japan in the post-war period and negotiated
voluntary export restrictions with the Japanese government,
which limited the quantity of Japanese exports to the United
States.
9. Adam Smith is recognised
as the founder of modern
economics and as one of
the first and most famous
thinkers who argued in
favour of free trade and he
developed the theory of
absolute advantage in 1776.
Theory Of Absolute Advantage
10. • Export those goods and services for which a
country is more productive than other countries.
• Import those goods and services for which other
countries are more productive that it is.
• Country should concentrate on production of
goods in which it holds an absolute advantage.
• Measures nations wealth by the standard of
living of its people.
Absolute Advantage
11. The main concept of absolute advantage is
generally attributed to ADAM SMITH for his
1776 publication An inquiry into the nature
and causes of the wealth of nations on which
he countered mercantilist ideas.
Origin Of Theory
12. • Party X can produce 10 widgets per hour with 5
employees.
• Party Y can produce 20 widgets per hour with 5
employees.
• Assuming that the employees of both parties are
paid equally, Party Y has an absolute advantage
over Party X in producing widgets per hour because
Party Y is producing twice as many as party X with
same number of employees.
Example of Absolute Theory
13. This theory was a step forward in explaining the need
for countries to specialize in certain products and
engage in international trade to increase their
productivity. This theory was not helpful to those
countries who did not have an absolute advantage in
certain goods.
CRITICISM
14. David Ricardo’s theory of
Comparative advantage
David Ricardo came up with the law of
comparative advantage in 1817.
It is a theory about political gains from trade
of companies, countries and people that arise on
account of differences in factor endowments or
technological progress.
He demonstrated that if two countries capable
of producing two commodities engage in
the free market, then each country will increase
its overall consumption by exporting the good
for which it has a comparative advantage while
importing the other good, provided that there
exist differences in labor productivity between
both countries.
David Ricardo (1772-1823)
15. Assumptions
Free tradeThere is no transport cost
Labour is homogenous
Cost of production is expressed in terms of labour
Production is subject to constant returns to scale
There are two countries and two commodities
Perfect competition exits
Labour is perfectly mobile
No technological changeFull employment exits
16. Example
Poorland’s cost of producing wine is higher than Richland’s in
terms of hours of labour and is lower in terms of bread.
Poorland has a comparative advantage in producing wine.
Richland has a comparative advantage in producing bread.
17. If they exchange wine and bread one for one, Poorland can
specialize in producing wine and trading some of it to Richland,
and Richland can specialize in producing bread.
By shifting ten hours of labours out of producing bread, Poorland
gives up the one loaf that this labour could have produced, the
reallocated labour produces two bottles of wine, which will trade
for two loaves of bread. Trade nets Poorland one additional loaf
of bread.
By shifting three hours out of producing wine, Richland cuts wine
production by one bottle but increases bread production by three
loaves. It trades two of these loaves for Poorland’s two bottles of
wine. Richland has one more bottle of wine than it had before,
and an extra loaf of bread
18. CRITICISM
Restrictive model- only two countries and two
commodities
Labour theory of value
Full employment
Ignore transport cost
Demand is ignored
No free trade
Complete specialization
Not applicable to developing countries
20. Ohlin states that trade results on
account of the different relative
price of different goods in different
countries. The relative price
commodity difference is the result
of relative costs and factor price
differences in different countries.
Differences in factor prices are
due to differences in factor
endowments in different
countries. It, thus, boils down to
the fact that trade occurs because
different countries have different
factor endowments. Ohlin’s
theory is, therefore, also described
as the factor endowment theory or
the factor proportions analysis.
The Heckscher-Ohlin theorem is: countries which are rich in
labour will export labour intensive goods and countries
which have plenty of capital will export capital-intensive
products.
21. Ohlin’s theory is usually expounded in terms of a two-factor
model with labour and capital as the two factors of
endowments. The gist of the theory is: what determine trade are
differences in factor endowments. Some countries have plenty
of capital; others have an abundance of labour.
22. Ohlin’s Simple Model:
Ohlin makes the following assumptions of a simplified
static model to the analysis:
1. There are two countries A and B.
2. There are two factors, labour and capital.
3. There are two goods; X and Y of which X is labour-intensive and Y is
capital-intensive.
4. Country A is labour-abundant country В is capital-rich.
5. There is perfect competition in both the commodity and factor markets.
6. All production functions are homogeneous of the first degree. Hence
there are constant returns to the scale.
7. There are no transport costs or other impediments to trade.
8. Demand conditions are identical in both the countries.
23. The Price Criterion of Relative
Factor Abundance:
According to the price criterion, a country having capital relatively cheap
and labour relatively dear is regarded as relatively capital-abundant,
irrespective of its ratio of total quantities of capital to labour in comparison
with the other country. In symbolic terms, when:
(PK/PL) A < (PK/PL) B
Country A is relatively capital-abundant. (Here P stands for factor price
and К for capital, L for labour, A and В for the two respective countries.)
Ohlin’s theorem may be verified diagrammatically in Fig. 1.
24. In a nutshell, we can interpret Ohlin’s theory as under:
1. Two countries A and В will involve themselves in trade, if relative
price of goods X and Y are different. To quote Ohlin, “the immediate
cause of inter-regional trade is always that goods can be bought cheaper
from outside in terms of money than they can be produced at home.”
2. Under comparative market conditions, prices are equal to average
costs. Thus, relative price differences are an account of cost differences.
3. Cost differences are taking place because of the factor price
differences in the two countries.
4. Factor prices are determined by factors’ supply and demand.
Assuming a given demand, it follows that a capital-rich country has a
cheaper or a lower capital price and a labour-abundant country has a
relatively lower labour price.
5. Ohlin states that each region has advantages in the production of
goods into which enter considerable amounts of factors abundant and
cheap in that region.
6. It follows that country A will tend to specialise in the production of
X and export its surplus. Likewise, В will specialise in Y and export it.
25. i. The basis of
internal trade is the
difference in
commodity prices
in the two
countries.
ii. Differences in
commodity prices
are due to cost
differences which
are the results of
differences in
factor endowments
in the two
countries.
iii. A capital-rich
country specialises
in labour-intensive
goods and exports
them. A labour-
abundant country
specialises in
labour-intensive
goods and exports
them.
Thus, Ohlin’s theory concludes that:
26. Limitations of Heckscher Ohlin's
H-O Theory ↓
Unrealistic
assumptions
Restrictive
One sided
theory
Static in nature
Wijnhold’s
criticism
Consumer’s
demand
ignored
Leonteif
paradox
27. Product Life-Cycle Theory
In1960′s, Raymond Vernon
introduces it
Stages : Innovation, Growth,
Maturity and Decline
Many products go through a trade
cycle
Predicting the product trade
performance
28. Phase I : Innovation
Introduction
Of The
Product
Low
Awareness
Huge
Investment
Is Made
Low Profits
Low
Competitors
29. Phase II : Growth
Demand
And Profit
Increases
Production
Cost
Decreases
Awareness
Is High
Competition
Increases
Export
Starts
30. Phase II : Maturity
Product Awareness is Maximum
Rate of Increase of Sales Decreases
Competition is Very High and Profit
Margin Decreases
Foreign Demand Grows
Export Surge Followed by a Fall in Export
31. Phase II : Decline
Product and Production Process is
Well Known
Revenue Drops and Many Products
Phase Out
Production Shifts to Developing
Countries
Imports Starts
32. Based on : Raymond Vernon, 1966. International investment and International trade in the product cycle. The
Quarterly journal of Electronics 80(2), pp. 190-207
33. Porter’s theory of competitive
advantage
• Michael Porter’s theory of
competitive advantage
contributes to understanding
the competitive advantage of
nations in international trade
and production.
• He tried to explain why a
nation achieves international
success in a particular
industry and identified four
attributes that promote or
impede the creation of
competitive advantage.
34. Factor endowments- A nation’s position in factors of production
necessary to compete in a given industry.
Can lead to competitive advantage
Can be either basic(natural resources,climate,location) or
advanced (skilled labour,infrastructure,technological know
how).
Demand conditions- The nature of home demand for the industry’s product or
service.
Influences the development of capabilities
Sophisticated and demanding customers
pressure firms to be competitive.
35. Relating and supporting industries- The presence and absence of
supplier industries that are internationally competitive.
Can spill over and contribute to other industries
Successful industries tend to be grouped in
cluster in countries.
Firm strategy, structure and rivalry- The conditions governing how
companies are created,organized,and managed, and the nature of domestic rivalry.
Different management ideologies affect the development of national
competitive advantage.
Vigorous domestic rivalry creates pressures to innovate ,to improve
quality ,to reduce cost, and to invest in upgrading advance features
36. •Government policy can
Affect demand through product standards
Influence rivalry through regulation and anti trust laws
Impact the availability of highly educated workers and advanced
transportation infrastructure.
•The four attributes, Government policy, and chance work as an
reinforcing system, complementing each other and in combination
creating the conditions appropriate for competitive advantage.