international trade environment. To get a clear perspective to this claim‚ I will glance though five major main theories on international trade-the Ricardian Comparative advantage Model on gains from specialization and opportunity cost theory‚ Heckscher-Ohlin model who believes that factor proficiency differences are the reasons why countries engage in international trade because of the gains from specialization and income distribution effects‚ the new international trade theory which examines the
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International Trade………………………………………....5 IV. Mercantilism…………………………………………………………………….....6 V. Absolute Advantage……………………………………………………………......8 VI. Comparative Advantage………………………………………………………........8 a. Qualification and Assumption VII. Hecksher-Ohlin Theory…………………………………………………………..11 a. The Leontief Paradox……………………………………………………..11 VIII. Country Similarity Theory IX. The Product Life- Cycle Theory X. Global Statistic Rival Theory XI. Porter’s Theory of national Competitive Advantage a. Porter’s
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1. Raymond Vernon argued that new products were developed by U.S. firms and first sold in the U.S. market because c. The wealth and size of the U.S market gave the firms an incentive to develop new products 2. This theory‚ initially proposed by Raymond Vernon‚ was based on the observation that for most of the 20th century a very large proportion of the world’s new products had been developed by U.S. firms and sold first in the U.S. market. a. Product life cycle 3. China‚ deliberately keeping
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Overview trade theories International Economics Classical trade theories Explanation Absolute advantage theory (Smith) * When one nation is more efficient than another in the production of one commodity but is less efficient than the other nation in producing a second commodity‚ then both nations can gain by each specializing in the production of the commodity of its absolute advantage (most efficient commodity) and exchanging part of its output with the other nation for the commodity of
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CHAPTER 5: INTERNATIONAL TRADE THEORY QUICKNOTES IN GLOBAL INTERNATIONAL TRADE Condensed by: Group 2 7 THEORIES OF INTERNATIONAL TRADE: 1. Mercantilism 2. Absolute Advantage 3. Comparative Advantage 4. Heckscher-Ohlin Theory 5. Product Life-Cycle Theory 6. New Trade Theory 7. The Theory of National Competitive Advantage 1. Mercantilism -emerged in England in the mid-16th century. The main tenet of mercantilism was that it was in a country’s best interests
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The final theory is the theories of Smith‚ Ricardo‚ and Heckscher-Ohlin. Smith‚ Ricardo‚ and Heckscher-Ohlin show why it is beneficial for a country to engage in international trade even for products it can produce for itself. According to Adam Smith‚ “countries should specialize in the production of goods for which they have an absolute advantage and then trade these good for the goods produced by other countries” (2009). Heckscher-Ohlin theory predicts that countries will export goods that make
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International Economics IIa PC-assignment 2 University of Groningen Faculty of Economics & Business Academic year 2011-2012 Author: Peter van der Noord Student number: s2035499 Programme: BSc Economics & Business Economics (Economics stream) Course: International Economics IIa Coordinator: prof.dr. M Koetter Lecturer: dr. E.H. van Leeuwen Question 5.7 The simulation file of question 5.7 repeats the Lerner diagram drawn in figure 5.4. We have
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benefit as a country to specialize in producing that good or service and compare with the production of other goods or services. Hechscher-Ohlin Factor Endowment General Theory: The Hechscher-Ohlin factor endowment theory explains the composition of international trade in terms of the relative factor endowments of different countries. “The Heckscher–Ohlin (H–O) theory can be expressed in the form of two theorems: first theory‚ H–O theorem deals with and predicts the pattern of trade and
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industry Question 1 To what extent the theory of Comparative advantage explain the rise of Indian software industry? Answer Theory of Comparative Advantage David Ricardo has developed theory of Comparative Advantage. Which was later developed by Heckscher-Olin. They all argued that all countries have different factor endowments of labour‚ land and capital inputs. Therefore‚ Countries should be able to specialise in and export products that they can efficiently produce. Comparative advantage says that
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CHAPTER 4 Problems 1‚ 3‚ 4‚ 5 and 7: 1. “In the United States where land is cheap‚ the ratio of land to labor used in cattle raising is higher than that of land used in wheat growing. But in more crowded countries‚ where land is expensive and labor is cheap‚ it is common to raise cows by using less land and more labor than Americans use to grow wheat. Can we still say that raising cattle is land intensive compared with farming wheat? Why or why not? Perhaps‚ but the argument implicit
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