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  • Theories of Global Trade and Investment: Chapter No: 3

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    Kashif Illahi Rajper
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    This document outlines several theories of global trade, including: - Mercantilism, which views trade as a zero-sum game where countries aim to accumulate gold/silver by exporting more than importing. - Absolute and comparative advantage theories, which argue that countries gain from specializing in and trading goods they have an absolute or comparative advantage in producing. - Factor endowments theory, which claims countries export goods intensive in their abundant factors and import goods intensive in scarce factors. - Product lifecycle theory, which describes the stages of new, mature, and standardized that products move through as they are traded internationally. - National competitive advantage theory focusing on factors that influence competition between local firms.

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    This document outlines several theories of global trade, including: - Mercantilism, which views trade as a zero-sum game where countries aim to accumulate gold/silver by exporting more than importing. - Absolute and comparative advantage theories, which argue that countries gain from specializing in and trading goods they have an absolute or comparative advantage in producing. - Factor endowments theory, which claims countries export goods intensive in their abundant factors and import goods intensive in scarce factors. - Product lifecycle theory, which describes the stages of new, mature, and standardized that products move through as they are traded internationally. - National competitive advantage theory focusing on factors that influence competition between local firms.

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    Download as PPT, PDF, TXT or read online from Scribd
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    6 views10 pages

    Theories of Global Trade and Investment: Chapter No: 3

    Uploaded by

    Kashif Illahi Rajper
    This document outlines several theories of global trade, including: - Mercantilism, which views trade as a zero-sum game where countries aim to accumulate gold/silver by exporting more than importing. - Absolute and comparative advantage theories, which argue that countries gain from specializing in and trading goods they have an absolute or comparative advantage in producing. - Factor endowments theory, which claims countries export goods intensive in their abundant factors and import goods intensive in scarce factors. - Product lifecycle theory, which describes the stages of new, mature, and standardized that products move through as they are traded internationally. - National competitive advantage theory focusing on factors that influence competition between local firms.

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    of 10

    THEORIES OF GLOBAL TRADE AND INVESTMENT

    CHAPTER NO: 3

    Part I

    The International Financial Environment


    Multinational Corporation (MNC)

    Foreign Exchange Markets

    Exporting & Importing

    Dividend Remittance & Financing

    Investing & Financing

    Product Markets

    Subsidiaries

    International Financial Markets

    TRADE THEORIES
    Mercantilism Absolute advantage Comparative advantage Factor Endowments theory The product lifecycle theory National competitive Advantage

    1. MERCANTALISM
    1st international theory emerged in England in mid-16th century. Gold and silver are the medium of exchange and trade Country could earn Gold and Silver by exporting goods. The doctrine of mercantilism explains Zero-sum game.

    THEORY OF ABSOLUTE ADVANTAGE


    Proposed by Adam Smith. Countries differ in their ability to produce goods efficiently. The principle of Positive sum-game. Potential gain from trade due to absolute advantage

    THEORY OF COMPARATIVE ADVANTAGE


    Advantage arise from difference in productivity
    Ricardo argued that country should produce those goods which it can produce most efficiently.

    Reinforced the principle of positivegame.

    FACTOR ENDOWMENT THEORY


    BY Swedish economist Eli Heckscher and Bertil ohlin. Different nations have different factor endowments and different factor endowments explain difference in factor costs. Countries will export those goods that make intensive use of locally abundant and viceversa.

    THE PRODUCT LIFE CYCLE THEORY


    International product lifecycle theory (IPLC) has three stages 1. New product stage 2. Mature product stage 3. Standardized product stage

    NEW PRODUCT

    MATURING PHASE

    STANDARDISED STAGE

    The International Product Life Cycle


    Firm creates product to accommodate local demand. Firm exports product to accommodate foreign demand. Firm establishes foreign subsidiary to establish presence in foreign country and possibly to reduce costs.

    a. Firm differentiates product from competitors and/or expands product line in foreign country.

    or b. Firms foreign business declines as its competitive advantages are eliminated.

    NATIONAL COMPETITIVE ADVANTAGE


    By Michael porter of Harvard Business school in 1990. Four broad attributes of a nation shape the environment in which local firms compete.
    1. 2. 3. 4. Factor endowment Demand conditions Related and supporting industries Firms strategy, structure and rivalry

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