International Trade Theories

ASSIGNMENT NO# 01

SUBMITTED TO: Dr. Um e Rubab

SUBMITTED BY: Nayab Zahra

Momina Usman

Huraira Khan

REG NO:

GROUP: B

SEMESTER: IV

SUBJECT: Organizational Behavior

DATE: October 24, 2022

DEPARTMENT: Business Administration

International Trade Theories
International Trade Theories

Comparison of International Trade Theories

Mercantilism Porter’s Heckscher- The new trade Absolute Comparat
Diamond Ohlin theory theory Advantage ve
Theory Advantag
Theory

Definition Governments Porter’s Commodities New Trade The father Comparati

utilized their diamond theory required for Theory (NTT) of modern e
economy to is designed to their is an economic economics, advantage
strengthen state help understand production theory that was Adam theory
much of thief
authority at the the competitive developed in Smith, describes
abandoned
expense of advantage that factors of
the 1970s as a asserted that the
other nations in nations or production and way to predict nations economy’s
a process groups possess little of source international should only ability to
known as due to certain factors Are trade patterns. manufacture produce a
mercantilism. factors available exported in NTT came items in good or
to them, and to exchange e of about to help us which they service at a
explain how for goods that understand why have a clear relatively
governments call for factors countries are competitive lower
can act as in the opposite trade partners edge. opportunit
catalysts to proportion when they are cost than
improve a trading similar its other
country's goods and trading
position in a services partners
globally
competitive
economic
environment.
History The Michael Porter's The primary NTT emerged The concept Comparati
establishment of Diamond work behind in the late of absolute e
the nation-state Model, often the Heckscher- 1970s, and a advantage advantage
marked the known as the Ohlin model number of was theory was
was a 1919
beginning of Porter Diamond economists developed developed
Swedish paper
mercantilism in Theory of written by Eli
pointed out the by 18th- by British
16th-century National Heckscher at ability of firms century economist
Europe. From Advantage, was the Stockholm to attain economist David
the sixteenth to first published School of economies of Adam Smith Ricardo in
the eighteenth in his book, The Economics. His scale that in his book 19th
centuries, Competitive student, Bertie focuses on the The Wealth century
mercantilism Advantage of Ohlin, added to role of of Nations that has
predominated as Nations, it in 1933. increasing given the
the economic released in constant returns cause and
system in the 1990. It's a to scale and benefits of
International Trade Theories

West. model for network effects. internation

determining a al trade to
country's or the
group's differences
competitive in the
edge in a relative
specific opportunit
industry costs of
producing
the same
commoditi
es among
countries.
Explanati Governments Porter's According to NTT explained It refers to It basically
on wanted to build diamond shows Heckscher- without an explains
up their riches four main Ohlin theory, differences in individual, the
in the form of attributes that a country has factor company, or advantage,
endowments also country that one trading
bullion and he claims are comparative
international
make sure that the key advantages in can produce partner can
trade occurs
exports determinants of those because of at a lower have over
outpaced national commodities economies of marginal the other in
imports (mostly competitive that use its scale between cost. Such production
gold and silver). advantage: abundant similar countries. an of goods.
1. factor factor This argues advantage is So, it
conditio intensively. countries should established draws a
ns Hence, each specialize in when compariso
2. demand country will specific niches to (compared between
conditio export the reduce per-unit to the
cost and achieve competitors) different
ns product which
economies of
3. related uses its : Fewer trading
scale and such
and abundant specialization materials partners.
supporti factor will let countries are used to
ng intensively trade with each produce a
industrie and will other. product.
s import the
4. Firm product which
strategy, uses its scarce
structure factor
, and intensively.
rivalry. For that
reasons, the
labor-
abundant
countries
export labor
intensive
International Trade Theories

goods and
capital-
abundant
countries
export capital
intensive
goods.
Examples High tariffs, An example A small Nokia (Home Saudi If a countr
especially on where Porter's country like Country – Arabia is expert in
manufactured Diamond can be Luxembourg Finland, products exports making
goods, were one used to explain has much less – Electrical and petroleum to cheese and
capital in total electronic
of the policies. a regional Japan chocolate,
than India, but equipment)
Prohibiting advantage is the Australia they may
Luxembourg dominated the
trade between car has more production and exports beef determine
colonies and manufacturing capital per marketing of to South how much
other countries. industry in worker. mobile phone Africa. labor is
Germany Accordingly, sets. Us exports used for
because it the Huckster- aircraft to producing
satisfies the Ohlin theory Australia. each good
four key factors predicts that If a specifi
in Porter's Luxembourg number of
Diamond will export labor is
capital- producing
intensive
10 units of
products to
India and cheese in a
import labor- given time
intensive and the
products in same
return. number of
labor is
producing
20 units of
chocolate
in the sam
time, then
the country
has a
comparativ
e
advantage
in making
chocolate.
Limitatio It views trade as 1) The Porter  The Less innovation Absolute Transport
a zero sum model does not technology  Only first Mover Advantage costs,
ns game, if one if adequately may not be will get Theory exchange
one country address the role superior. assumed rates and
International Trade Theories

benefits the of multinational  The advantage that only tariffs can

must lose. corporations. manpower  Increase in bilateral change the
2) Quality may not be demand causes trade could relative
issues as in able to cause increases in take place prices of
sourcing efficient inflation due to between goods and
globally the utilization of limited products nations and can distort
contract is fixed resources only in two comparativ
so to boost your  The commoditie e
profit only difficulty in s that are to advantages
option is to moving be Imperfect
compromise in resources exchanged. compariso
cost of especially the can lead to
production. labor force prices
3) Possibility of into desired being
loss of industries different to
individual  The cost of the
special talent, as extracting opportunit
one may thrust may be huge. cost ratios
idea on other  Fluctuation
that will led in demand
suppression of  Political
talent. restrain
4) Job loss,  The
Global sourcing transport of
beneficial for raw materials
management may be
but in domestic difficult.
level less job  The things
opportunity for may perish
locals in an quickly
organization.
Advantag It encourages The Porter The Heckscher- There would be Fewer
the complete Diamond Ohlin model is only first mover materials
es development of Theory suggests extremely advantage are used to
all natural that countries useful when produce a
illustrating how
resources. It can create new product.
endowments of
naturally factor Cheaper
a particular
reduces advantages for resource can materials
unemployment themselves, influence trade (thus a
rates. Cultural such as a strong between lower cost)
exchanges are technology economies are used to
encouraged to industry, skilled Shows us how produce a
promote trade. labor, and comparative product.
government advantage is Fewer hours
support of a explained are needed
country's somewhat by to produce a
the relative
International Trade Theories

economy abundance of product.

certain
resources, such
as land, labour
or capital.