INTERNATIONAL BUSINESS
INTERNATIONAL BUSINESS
Pham To Mai
Faculty of Economics
National University of HCMC
Part II
INTERNATIONAL
BUSINESS ENVIRONMENT
INTERNATIONAL TRADE
THEORY AND POLICY
INTERNATIONAL
TRADE
THEORY
Mercantilism
Gold and silver were mainstays of national wealth.
It was in a country‟s best interests to maintain a trade surplus maximize exports and minimize imports.
Limitation: “Zero-sum game”
Theory of Absolute Advantage
Adam Smith (1776)
Countries should produce only goods for which they have an absolute advantage, then trade for those they do not have an absolute advantage.
“positive-sum game”
Limitation: What will a country gain from trade if it has an absolute advantage in both products or it do not have an absolute advantage in any product?
Theory of Comparative Advantage
David Ricardo (1817)
Countries should produce only goods for which they have an comparative advantage, then trade for those they do not have an comparative advantage. All countries that participate in trade realize economic gain “positive-sum game”
8
Theory of Absolute
Advantage
Absolute advantage =
Capability of one country to produce more of a product with the same amount of input than another country.
Patterns of trade are determined by the differences in productivity. Subjects to compare: production of the same product in another country.
PTM – Trade Theory and Policy
Theory of Comparative
Advantage
Comparative advantage =
Capability of one country to produce a product more efficiently than to produce another one.
Patterns of trade are determined by the differences in productivity. Subjects to compare:
Production of another product in own country.
07-Sep-14
Heckscher (1919)-Olin (1933) Theory
Factor endowments: extent to which a country is endowed with such resources as land, labor, and capital. Export goods that intensively use factor endowments which are locally
Pham To Mai
Faculty of Economics
National University of HCMC
Part II
INTERNATIONAL
BUSINESS ENVIRONMENT
INTERNATIONAL TRADE
THEORY AND POLICY
INTERNATIONAL
TRADE
THEORY
Mercantilism
Gold and silver were mainstays of national wealth.
It was in a country‟s best interests to maintain a trade surplus maximize exports and minimize imports.
Limitation: “Zero-sum game”
Theory of Absolute Advantage
Adam Smith (1776)
Countries should produce only goods for which they have an absolute advantage, then trade for those they do not have an absolute advantage.
“positive-sum game”
Limitation: What will a country gain from trade if it has an absolute advantage in both products or it do not have an absolute advantage in any product?
Theory of Comparative Advantage
David Ricardo (1817)
Countries should produce only goods for which they have an comparative advantage, then trade for those they do not have an comparative advantage. All countries that participate in trade realize economic gain “positive-sum game”
8
Theory of Absolute
Advantage
Absolute advantage =
Capability of one country to produce more of a product with the same amount of input than another country.
Patterns of trade are determined by the differences in productivity. Subjects to compare: production of the same product in another country.
PTM – Trade Theory and Policy
Theory of Comparative
Advantage
Comparative advantage =
Capability of one country to produce a product more efficiently than to produce another one.
Patterns of trade are determined by the differences in productivity. Subjects to compare:
Production of another product in own country.
07-Sep-14
Heckscher (1919)-Olin (1933) Theory
Factor endowments: extent to which a country is endowed with such resources as land, labor, and capital. Export goods that intensively use factor endowments which are locally