International Busine

Sixteenth Edition, Global Edition

Chapter 5
Trade and Factor
Mobility Theory
 Learning Objectives
5-1 Understand why policymakers rely on international trade
and factor mobility theories to help achieve economic
objectives
5-2 Illustrate the historical and current rationale for
interventionist and free trade theories
5-3 Describe theories that explain national trade patterns

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 Learning Objectives

5-4 Explain why a country’s export capabilities are dynamic

5-5 Summarize the reasons for and major effects of
international factor movements
5-6 Assess the relationship between foreign trade and
international factor mobility

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 Factor Mobility and Trade T

Objective 5-1

• What is Factor Mobility?

• Trade theory and focus on IB

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 Interventionist Th
Objective 5-2
• What is Mercantilism?
– Governmental policies
– Balance of Trade
• What is neomercantilism?

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 Free Trade The
Objective 5-2
• Why Trade at all?
• Absolute Advantage
• Natural Advantage
• Acquired Advantage
• Comparative Advantage
• Assumptions made with Comparative Advantage
and Absolute Advantage

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 Illustration of Absolut
Objective 5-2
Figure 5.2 Production Possibilities under Conditions of Absolute Advantage

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 Illustration of Comparat
Objective 5-2
Figure 5.3 Production Possibilities under Conditions of Comparative Advantage

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 Map of State and Relative
Economies
Objective 5-2
Map 5.2 U.S. States’ Economies Compared to National Economies

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 Theories to Explain Tra
Objective 5-3
• How much does a country trade?
– Theory of country size
– Size of the economy
• What types of products should a country trade?
– Factor Proportions Theory
• With whom do countries trade?
– Country-Similarity theory

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 PLC Theory
Objective 5-4
• What is the Product Lifecycle Theory (PLC)?
– Introduction
– Growth
– Maturity
– Decline

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 Limitations of PLC T
Objective 5-4

• Exceptions to PLC Theory

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 Diamond of National Com
Objective 5-4 Advantage Theory
Figure 5.4 The Diamond of National Competitive Advantage

Source: Based on Michael E. Porter, “The Competitive Advantage of Nations,” Harvard Business Review, 68:2 (March–April
1990).

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 The Theory and Effects of
Objective 5-5

• What is the Factor Mobility Theory?

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 Why Production Facto
Objective 5-5
• Capital
• People
• Effects of factor movements
– Brain drain

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 The Relationship Betw
and Factor Mobility
Objective 5-6

• Substitution
• Complementarity

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