International Trade Theory

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International Trade Theory
Chapter Outline

OPENING CASE: The Ecuadorian Rose Industry

INTRODUCTION

AN OVERVIEW OF TRADE THEORY

The Benefits of Trade The Pattern of International Trade Trade Theory and Government Policy

MERCANTILISM

Country Focus: Is China a Neo-Mercantilist Nation?

ABSOLUTE ADVANTAGE

COMPARATIVE ADVANTAGE

The Gains from Trade Qualifications and Assumptions Extensions of the Ricardian Model Country Focus: Moving U.S. White Collar Jobs Offshore

HECKSCHER-OHLIN THEORY

The Leontief Paradox

THE PRODUCT LIFE CYCLE THEORY

Evaluating the Product Life Cycle Theory

NEW TRADE THEORY Increasing Product Variety and Reducing Costs Economies of Scale, First Mover Advantages and the Pattern of Trade Implications of New Trade Theory

NATIONAL COMPETITIVE ADVANTAGE: PORTER’S DIAMOND

Factor Endowments Demand Conditions Related and Supporting Industries Firm Strategy, Structure, Rivalry Evaluating Porter’s Theory Management Focus: The Rise of Finland’s Nokia FOCUS ON MANAGERIAL IMPLICATIONS

Location First-Mover Advantages Government Policy

SUMMARY

CRITICAL THINKING AND DISCUSSION QUESTIONS

CLOSING CASE: Trade in Information Technology and U.S. Economic Growth

Learning Objectives

1. Understand why nations trade with each other.

2. Be familiar with the different theories explaining trade flows between nations.

3. Understand why many economists believe that unrestricted free trade between nations will raise the economic welfare of all countries that participate in a free trade system.

4. Be familiar with the arguments of those who maintain that government can play a proactive role in promoting national competitive advantage in certain industries.

5. Understand the important implications that international trade theory holds for business practice.

Chapter Summary

This chapter focuses on

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