Professional Documents
Culture Documents
Learning Objectives
Explain the theories that attempt to explain Discuss the arguments for imposing trade
restrictions
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Learning Objectives
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Absolute Advantage
Example
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Absolute Advantage
Terms of Trade (Ratio of International Prices)
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Comparative Advantage
Terms of Trade at a rate of bolt of cloth for 1 ton of soybeans
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Comparative Advantage
Production Possibility Frontiers (figure 3.1)
Figure 3.1
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Differences in Taste
A demand-side construct that is always difficult to deal with in economic theory
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Exchange Rate the price of one currency stated in terms of another currency
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First-Mover Theory
Pattern of trade in goods subject to scale economies may be determined by historical factors
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Source: Reprinted by permission of the Harvard Business Review. The Competitive Advantage of Nations by Michael E. Porter, MarchApril 1990, p. 77. Copyright 1990 by The President and Fellows of Harvard College; all rights reserved.
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Trade Restrictions
Retaliation
Dumping: selling a product abroad for less than the cost of production, the price in the home market, or the price to third countries Social dumping Environmental dumping Financial services dumping Cultural dumping Tax dumping
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Trade Restrictions
Subsidies: Financial contributions, provided directly or indirectly by a government, which confer a benefit; include grants, preferential tax treatment, and government assumption of normal business expenses (figure 3.4) Countervailing duties: Additional import taxes levied on imports that have benefited from export subsidies
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Source: Agriculture: Support Estimates, 2004, OECD in Figures: Statistics on the Member Countries. Accessed 7/2005 Link: http://dx.doi.org/10.1787/758034618756.
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Tariff Barriers
Tariff
Taxes on imported goods for the purpose of raising their price to reduce competition for local producers or stimulate local production
Ad Valorem Duty
An import duty levied as a percentage of the invoice value of imported goods
Specific Duty
A fixed sum levied on a physical unit of an imported good
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Tariff Barriers
Compound Duty
A combination of specific and ad valorem duties
Nontariff Barriers
Nontariff barriers (NTBs)
All forms of discrimination against imports other than import duties
Quantitative
Quotas: numerical limits placed on specific classes of imports Voluntary export restraints (VERs): Export quotas imposed by exporting nation
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Nontariff Barriers
Orderly Marketing Arrangements
Formal agreements between exporting and importing countries that stipulate the import or export quotas each nation will have for a good
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Financial Factors
Imperfections in the foreign exchange markets (Aliber)
Internalization Theory
An extension of the market imperfection theory: to obtain a higher return on its investment, a firm will transfer its superior knowledge to a foreign subsidiary rather than sell it in the open market
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