Published on September 30, 2013
Chapter 2 Trade Theories and Economic Development Bahman Moghimi (MA, DBA)Bahman Moghimi (MA, DBA) B.Moghimi@yahoo.co.uk
Chapter Outline Basis for International Trade - Production Possibility Curve - Principle of Absolute Advantage - Principle of Comparative/Relative Advantage Exchange Ratios, Trade, and Gain Factor Endowment Theory B.Moghimi@yahoo.co.uk
Chapter Outline The Competitive Advantage of Nations A Critical Evaluation of Trade Theories - The Validity of Trade Theories - Limitations and Suggested Refinements Economic Cooperation - Levels of Economic Integration Economic and Marketing Implications B.Moghimi@yahoo.co.uk
Basis for International Trade Principle of Absolute Advantage - a country should export a commodity that can be produced at a lower cost than can other nations - or import a commodity that can only be produced at a higher cost than can other nations B.Moghimi@yahoo.co.uk
Basis for International Trade Principle of Comparative/Relative Advantage - a country should export either a product with the greatest comparative advantage (or with the least comparative disadvantage) - or import either a product for which it has the greatest comparative disadvantage (or the least comparative advantage) B.Moghimi@yahoo.co.uk
Factor Endowment Theory Factors of Production - labor - land - capital - others (technology, education, etc.) inequality of relative prices is a function of regional factor endowments comparative advantage is determined by relative abundance of such endowments B.Moghimi@yahoo.co.uk
Michael Porter The Competitive Advantage of Nations Determinants of International Competitiveness - factor conditions - demand conditions - related and supporting industries - firm strategy, structure, and rivalry - chance - government B.Moghimi@yahoo.co.uk
B.Moghimi@yahoo.co.uk Michael Porter The Competitive Advantage of Nations
Validity of Trade Theories Leontief Paradox – Tendency for countries with similar endowments to trade among themselves Offshoring Factor Mobility and Substitution Demand Marketing Trade Barriers B.Moghimi@yahoo.co.uk
Levels of Economic Cooperation Free Trade Area Customs Union Common Market Economic and Political Union Political Union B.Moghimi@yahoo.co.uk
Economic Cooperation Free Trade Area - elimination of internal duties Customs Union - free trade area + establishment of common barriers Common Market - customs union + removal of restrictions on movement of production factors B.Moghimi@yahoo.co.uk
Economic Cooperation Economic and Monetary Union - common market - + harmonization of national economic policies - + one money Political Union - harmonization of national political policies B.Moghimi@yahoo.co.uk
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