INTERNATIONAL TRADE THEORY

Presented to: by: Subrat Sar Roy Presented Rahul

INTERNATIONAL BUSINESS

Trade theory-overview

Free Trade occurs when a government does not attempt to influence, through quotas or duties, what its citizens can buy from another country or what they can produce and sell to another country The Benefits of Trade allow a country to specialize in the manufacture and export of products that can be produced most efficiently in that country

Trade theory-overview
The

Pattern of International Trade displays patterns that are easy to understand (Saudi Arabia/oil or China/crawfish). Others are not so easy to understand (Japan and cars) The history of Trade Theory and government involvement presents a mixed case for the role of government in promoting exports and limiting imports Later theories appear to make a case for limited involvement

Mercantilism: mid-16th century

A nations wealth depends on accumulated treasure Gold and silver are the currency of trade Theory says you should have a trade surplus. Maximize export through subsidies. Minimize imports through tariffs and quotas Flaw: zero-sum game

Theory of absolute advantage

Adam Smith: Wealth of Nations (1776) argued:

Capability

of one country to produce more of a product with the same amount of input than another country can vary A country should produce only goods where it is most efficient, and trade for those goods where it is not efficient

Trade between countries is, therefore, beneficial

Theory of comparative advantage

David Ricardo: Principles of Political Economy (1817).

Extends free trade argument Efficiency of resource utilization leads to more productivity. Should import even if country is more efficient in the products production than country from which it is buying. Look to see how much more efficient. If only comparatively efficient, than import.

Makes better use of resources Trade is a positive-sum game

The Product life cycle theory of Trade

Maturity
Growth Decline

Opportunity Cost Theory

The opportunity cost theory define that opportunity cost of anything is the value of the alternative or other Opportunity.

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