Week4 – International Trade Theory
1. International(or foreign) trade is across borders.
2. The Mercantilist Doctrine : mercantilism is the first(or preclassical) theory of international trade. 3. Absolute Advantage Theory : The absolute advantage theory holds that the market would reach an efficient end by itself. Government intervention in the economic life of a nation and in trade relations among nations is counterproductive. 4. Comparative Advantage Theory : It was the comparative advantage of a nation in producing a good relative to the other nation that determined international trade flow. It is useful to introduce the concept of opportunity cost. 5. Heckscher-Ohlin Theorem : The central notion of the H-O theorem is that a country exports goods that make intensive use of the country’s abundant factor and imports goods that make intensive use of the country’s scarce factor. 6. The Leontief Paradox : Leontief's paradox in economics is that the country with the world's highest capital-per worker has a lower capital/labor ratio in exports than in imports. This econometric find was the result of Professor Wassily W. Leontief's attempt to test the Heckscher-Ohlin theory empirically. In 1954, Leontief found that the U.S. (the most capital-abundant country in the world) exported labor-intensive commodities and imported capital-intensive commodities, in contradiction with H-O theorem. 7. Human Skills and Technology-Based Views : The human skills and technology-based view is regarded as a refinement of the conventional theory of trade. It added two new factors of production, namely human skills and technology gaps, to the explanation of comparative advantage sources. 8. The Product Life-Cycle Model : Product life cycle is the stages through which a product or its category bypass. From its introduction to the marketing, growth, maturity to its decline or reduce in demand in the market. Not all products reach this...
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