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International Business
7/16/2013

LESSON 2 THEORIES OF INTERNATIONAL BUSINESS

Instructor: LTT. Xuân

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Content

Instructor: LTT. Xuân

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7/16/2013

AN OVERVIEW
• Free trade refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell to another country International trade allows a country to specialize in the manufacture and export of products that can be produced most efficiently in that country, and import products that can be produced more efficiently in other countries
Instructor: LTT. Xuân 3

AN OVERVIEW
• International trade theory:
– helps explain trade patterns – analyses the basic of and the gains from international trade – focuses on the microeconomic aspects of the international economy
Instructor: LTT. Xuân 4

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7/16/2013

THEORIES OF CLASSICAL TRADE
• Mercantilism (mid-16th century) asserted that it is in a country’s best interest to maintain a trade surplus, to export more than it imports – it advocated government intervention to achieve a surplus in the balance of trade – it viewed trade as a zero-sum game (one in which a gain by one country results in a loss by another) • Mercantilism is problematic and not economically valid, yet many political views today have the goal of boosting exports while limiting imports by seeking only selective liberalization of trade
Instructor: LTT. Xuân 5

THEORIES OF CLASSICAL TRADE
Mercantilism – Believed nation’s welfare was in accumulation of stock of precious metals. – Trade surplus created by import restrictions and government subsidies to exporters. – Mercantilist era ended in 1700s.
Instructor: LTT. Xuân 6

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7/16/2013

THEORIES OF CLASSICAL TRADE
Why do nations trade?

Instructor: LTT. Xuân

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THEORIES OF CLASSICAL TRADE
The theory of absolute advantage • Built on the ideas of Adam Smith • Absolute advantage exists between nations when they differ in their
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