Trade Theories.pptx
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This document discusses various trade theories: - Mercantilism focused on acquiring gold and saw trade as zero-sum, while absolute advantage explained trade through differences in productivity. - Comparative advantage built on this to show that all countries can benefit by specializing in what they're relatively best at producing. - Factor endowment theory argues countries export goods intensive in local factors they have in abundance. - More modern theories include product life cycle, new trade based on economies of scale, and national competitive advantage focusing on a nation's determinants. The aim of trade theories is to explain trade patterns and their impacts, and guide public policy to increase national well-being.
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International trade theories and whith explain
Trade theories provide explanations for how and why international trade occurs. There are traditional and modern trade theories. Traditional theories include mercantilism, absolute advantage, and comparative advantage. Mercantilism focused on accumulating gold by promoting exports and limiting imports. Absolute advantage refers to when a country can produce a good more efficiently. Comparative advantage expanded on this by comparing production efficiencies between two goods. Modern theories include factor endowments, product life cycles, new trade, and Porter's diamond model. Factor endowments ties trade to a country's abundant production factors. Product life cycles track a good through stages from introduction to decline. New trade incorporates economies of scale and product differentiation. Porter's diamond model identifies national factors that can
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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
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Trade theories
This document provides an overview of several trade theories:
1. Mercantilism theory held that a country's wealth depended on exports exceeding imports to gain precious metals. It advocated government control to gain at others' expense.
2. Absolute advantage theory stated countries should specialize in what they produce most efficiently. Comparative advantage theory argued specialization benefits all, even without absolute advantage.
3. Factor endowment theory linked comparative advantage to abundant resources. Heckscher-Ohlin and Leontief paradox theories refined this based on capital and labor.
4. Other theories examined included product life cycles, Porter's diamond model of competitive advantage, and new trade theory focusing on increasing returns to scale.
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Theories of international trade
Mercantilism encouraged exports and discouraged imports to accumulate wealth, usually in gold and silver. Adam Smith argued that free trade and specializing in absolute advantages benefits countries more. Comparative advantage theory extended this by showing even without absolute advantages, all countries gain from trade. Porter's diamond model explains how national competitive advantages arise from factor conditions, demand conditions, related/supporting industries, and firm strategy/rivalry within a country.
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This document provides an overview of various trade theories:
1. It begins with explaining mercantilism theory, which held that a country's power depended on its wealth and advocated increasing exports and restricting imports.
2. It then discusses absolute advantage theory and comparative advantage theory, which argue that countries should specialize in producing goods where they have a relative cost advantage and trade for other goods.
3. Factor endowment theory and Hecksher-Ohlin theory posit that countries will export goods that intensively use their abundant and cheap domestic factors of production.
4. More recent theories discussed include product life cycle theory, new trade theory, and Porter's diamond model, which analyze factors like technology,
international trade theory unit 2 classical theory.pptx
hi
everyone
topic international trade theory
Introduction
International trade theory is a branch of economics that studies the exchange of goods and services between countries. It examines the patterns, benefits, and consequences of international trade, as well as the policies that govern it. The theory provides a framework for understanding the complex cvmxcrelationships between countries, firms, and individuals involvcxxced in international trade.
Classical Theories
The classical theories of international trade were developed in the 18th and 19th centuries by economists such as Adam Smith and David Ricardo. These theories emphasize the benefits of free trade and the gains from specialization.
Absolute Advantage Theory: Adam Smith's theory states that countries should specialize in producing goods for which they have an absolute advantage, or the ability to produce at a lower cost than other countries.
Comparative Advantage Theory: David Ricardo's theory states that countries should specialize in producing goods for which they have a comparative advantage, or the ability to produce at a lower opportunity cost than other countries.
Modern Theories
Modern theories of international trade were developed in the 20th century and provide a more nuanced understanding of international trade.
Heckscher-Ohlin Theory: This theory states that countries will export goods that use their abundant factors of production and import goods that use their scarce factors.
New Trade Theory: This theory emphasizes the role of increasing returns to scale, product differentiation, and imperfect competition in international trade.
Gravity Model: This theory states that trade between two countries is inversely proportional to the distance between them and directly proportional to their economic sizes.
Gains from Trade
International trade theory identifies several gains from trade, including:
Increased Efficiency: Trade allows countries to specialize in producing goods and services in which they have a comparative advantage, leading to increased efficiency.
Increased Variety: Trade provides consumers with a wider range of goods and services than would be available in a closed economy.
Lower Prices: Trade leads to increased competition, which can drive down prices and improve consumer welfare.
Economic Growth: Trade can stimulate economic growth by increasing investment, innovation, and productivity.
Trade Barriers and Policies
International trade theory also examines the impact of trade barriers and policies on international trade. Trade barriers, such as tariffs and quotas, can reduce the gains from trade and lead to trade wars. Trade policies, such as free trade agreements and trade liberalization, can promote trade and economic growth.
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Fiduciary or paper money is issued by the Central Bank on the basis of
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1. Mercantilism theory held that a country's wealth depended on exports exceeding imports to gain precious metals. It advocated government control to gain at others' expense.
2. Absolute advantage theory stated countries should specialize in what they produce most efficiently. Comparative advantage theory argued specialization benefits all, even without absolute advantage.
3. Factor endowment theory linked comparative advantage to abundant resources. Heckscher-Ohlin and Leontief paradox theories refined this based on capital and labor.
4. Other theories examined included product life cycles, Porter's diamond model of competitive advantage, and new trade theory focusing on increasing returns to scale.
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This document outlines several theories of international trade, including classical and modern theories. It discusses classical theories such as mercantilism, absolute advantage, comparative advantage, and the Hecksher-Ohlin theory. Modern theories covered include the country similarity theory, product life cycle theory, global strategy rivalry theory, and Porter's theory of competitive advantage of nations. The document provides details on the key aspects and implications of each theory.
Theories of international trade
Mercantilism encouraged exports and discouraged imports to accumulate wealth, usually in gold and silver. Adam Smith argued that free trade and specializing in absolute advantages benefits countries more. Comparative advantage theory extended this by showing even without absolute advantages, all countries gain from trade. Porter's diamond model explains how national competitive advantages arise from factor conditions, demand conditions, related/supporting industries, and firm strategy/rivalry within a country.
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This document provides an overview of various trade theories:
1. It begins with explaining mercantilism theory, which held that a country's power depended on its wealth and advocated increasing exports and restricting imports.
2. It then discusses absolute advantage theory and comparative advantage theory, which argue that countries should specialize in producing goods where they have a relative cost advantage and trade for other goods.
3. Factor endowment theory and Hecksher-Ohlin theory posit that countries will export goods that intensively use their abundant and cheap domestic factors of production.
4. More recent theories discussed include product life cycle theory, new trade theory, and Porter's diamond model, which analyze factors like technology,
international trade theory unit 2 classical theory.pptx
hi
everyone
topic international trade theory
Introduction
International trade theory is a branch of economics that studies the exchange of goods and services between countries. It examines the patterns, benefits, and consequences of international trade, as well as the policies that govern it. The theory provides a framework for understanding the complex cvmxcrelationships between countries, firms, and individuals involvcxxced in international trade.
Classical Theories
The classical theories of international trade were developed in the 18th and 19th centuries by economists such as Adam Smith and David Ricardo. These theories emphasize the benefits of free trade and the gains from specialization.
Absolute Advantage Theory: Adam Smith's theory states that countries should specialize in producing goods for which they have an absolute advantage, or the ability to produce at a lower cost than other countries.
Comparative Advantage Theory: David Ricardo's theory states that countries should specialize in producing goods for which they have a comparative advantage, or the ability to produce at a lower opportunity cost than other countries.
Modern Theories
Modern theories of international trade were developed in the 20th century and provide a more nuanced understanding of international trade.
Heckscher-Ohlin Theory: This theory states that countries will export goods that use their abundant factors of production and import goods that use their scarce factors.
New Trade Theory: This theory emphasizes the role of increasing returns to scale, product differentiation, and imperfect competition in international trade.
Gravity Model: This theory states that trade between two countries is inversely proportional to the distance between them and directly proportional to their economic sizes.
Gains from Trade
International trade theory identifies several gains from trade, including:
Increased Efficiency: Trade allows countries to specialize in producing goods and services in which they have a comparative advantage, leading to increased efficiency.
Increased Variety: Trade provides consumers with a wider range of goods and services than would be available in a closed economy.
Lower Prices: Trade leads to increased competition, which can drive down prices and improve consumer welfare.
Economic Growth: Trade can stimulate economic growth by increasing investment, innovation, and productivity.
Trade Barriers and Policies
International trade theory also examines the impact of trade barriers and policies on international trade. Trade barriers, such as tariffs and quotas, can reduce the gains from trade and lead to trade wars. Trade policies, such as free trade agreements and trade liberalization, can promote trade and economic growth.
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- The static and dynamic gains from international trade such as increased production, welfare, and efficient use of resources.
- An overview of different types of trade agreements from multilateral WTO agreements to preferential regional agreements.
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- Different payment methods and trade financing available to support international transactions.
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The document summarizes several theories of international trade:
Mercantilism aimed to accumulate wealth by maximizing exports and limiting imports. Absolute cost advantage theory stated that countries should specialize in what they can produce at lower cost. Comparative cost advantage incorporated opportunity costs and argued for specializing based on relative productivity. Factor endowment theory predicts that countries will export goods intensive in their abundant, cheap factors and import goods intensive in scarce, expensive factors. Porter's competitive advantage diamond model explains how factor conditions, demand conditions, related/supporting industries, and firm strategy/rivalry can lead to competitive success in international trade.
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This document discusses international trade and the gains from trade according to comparative advantage theory. It provides evidence that countries who liberalized trade grew faster than those who did not. While comparative advantage theory predicts patterns of trade well, it oversimplifies specialization and does not account for differences in resources or economies of scale between countries. The model also ignores potential negative impacts of trade like income distribution effects.
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This document discusses international trade theory and history. It begins with an overview of key concepts in international trade like trade, trade policy, and trade agreements. It then covers the history of international trade from ancient times through modern trade agreements like the GATT. The document also summarizes theories of international trade like mercantilism, absolute advantage, comparative advantage, and factor endowment theories. It provides examples to illustrate comparative advantage and factor endowment theories.
international trade theories business concepts
International trade theories provide explanations for why trade occurs between countries. Early theories included mercantilism, which argued that countries should encourage exports and discourage imports to accumulate gold and silver. Adam Smith proposed absolute advantage based on a country's ability to produce goods more efficiently. David Ricardo introduced comparative advantage, which recognizes specialization based on relative rather than absolute costs. Later theories examined factors like resource endowments (Heckscher-Ohlin theory) and the stages of a product's life cycle (Vernon's theory).
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Trade Theories.pptx
- 1. TRADE THEORIES Dr. Swati Sharma
- 3. WHY DO COUNTRIES TRADE? 1. Availability of products (natural resources, new products, etc.) 2. International price differential as a consequence of: Productivity differential Differences in technology Differences in factor endowments 3. Product differentiation and market structure
- 4. The aim of Trade Theory is to explain the existing patterns of trade, the impact on the domestic economy, and the type of public policies that should be introduced to increase a country's well-being. TRADE THEORY
- 5. TYPES OF THEORIES Classification of Theories Traditional Mercantilism Absolute Advantage Modern Comparative Advantage Factor Endowment Theory Country Similarity Product Life Cycle New Trade Theory National Competitive Advantage
- 7. • This theory is given by Thomas Mun. • Emerged in England in mid 16th Century . • It assumes gold as a measure of country’s wealth. • It is based on Zero Sum Game. • Primary goal is to increase the wealth of the nation by acquiring gold. • More precious metals means a richer and more powerful nation. • Countries should increase gold by promoting exports and discouraging imports. • Drawback: This theory does not recognize anything except gold as a measure of country’s wealth. MERCANTILISM THEORY
- 8. This theory is given by Adam Smith in 1776 (Wealth) of Nation It is based on Productivity and Efficiency. Trade is Positive Sum Game. Absolute advantage is when a country can produce a product more efficiently than the other country. Exports goods of production advantage and imports goods of production disadvantage. Sources ofAbsoluteAdvantage: Natural andAcquired 32 ABSOLUTE ADVANTAGE THEORY
- 9. Fails to explain how free trade can be advantageous to two countries when one country can produce all goods Country not having absolute advantage can’tgainfromfree trade Differences in climatic conditions & natural resourceswon’tleadto absolute advantage What if the country is bad at making everything? 33 DRAWBACKS
- 10. COMPARATIVEADVANTAGE THEORY This theory is given by David Ricardo in 1817. Comparative advantage occurs when a country can produce a good or service at a lower opportunity cost than another country. Trade is positive sum game If country has advantage of production of both the commodities, then compare the efficiency of both goods. A country should produce only goods where it is most efficient & import those goods in which it’s less efficient.
- 11. • Ricardo's Theory was based on only two countries & only two commodities, but international trade is among many countries with many commodities • Another serious defect is that transportation costs are not considered in determining comparative cost differences 35 DRAWBACKS
- 12. This theory is also known as Factor Proportion theory or Heckscher and OhlinTheory or two factor theory. Given by Eli Heckscher and Bertil Ohlin in 1933. It explains international trade in terms of available factors in the country. Countries will export the goods which make intensive use of the factors that are locally available in the large quantities and import goods that make intensive use of factors that are locally scarce. FACTOR ENDOWMENT THEORY
- 13. M O D E R N THEORIES
- 14. • It is given by Swedish Economist Staffan B. Linder in 1961. • It is just opposite of Factor Endowment Theory. • Intra Industry Trade with differentiation should be undertake by similar countries. • Inter-Industry trade should be undertaken by the countries that are not similar. Country Similarity Theory
- 15. 4- 21 • This theory is given by R .VERON in 1966 • Aproduct goes through the Product Life Cycle. • Country where the product is first launched is the Innovator. • At the end of the cycle the innovator becomes the Imported. PRODUCT LIFE CYCLE
- 16. 4- 22
- 17. It is given by Paul Krugman in 1980. If a country having following factors ,then it can become the exporter. • Economies of Scale • First MoverAdvantage • Product Differentiation 30 NEW TRADE THEORY
- 19. It is given by Michael Porter in 1990. The factor can give competitive advantage to the country. Porter helps to understand the determinant that are available to a nation. Export goods from the industry where the determinants are favourable National Competitive Advantage