IB (International Trade Theories)

-explain national economy countries-- country advantages-- that enable such exchanges to happen
-

-explain links among natural country advantages, gov action, & industry characteristics that enable such exchange to happen

-merchantislism
-comparative advantage
-product life cycle theory
-new trade theory
-porter's diamond

-country will gain wealth when exports exceed imports
-goals:
*earn gold & silver
*gain wealth= store gov's gold & silver
*have a trade surplus
*max exports through subsidies
*limit imports through tarriffs & quotas, or other methods
-flaw: "a zero sum game"
-today's neo-merchantists= protectionists

-is maintaining a trade surplus a feasible goal???
*increased wealth (gold) and exports leads to growth & inflation
*imports keep inflation low
*result: a country initially exporting utlimatley becomes importer b/c of changes in relative prices
*in long run, surplus is self defeating (no one can keep trade surplus)

-an export that brings $ to the exporting country is positive (+)
-an import that causes $ outflow is labeled negative (-)

The world does not consist of two countries and two
goods; no transportation costs assumed; resources are mobile between goods within countries, but not across countries; constant returns to scale; fixed stocks of resources; and no effects on income distribution within countries
-diminishing returns show that is is not feasible for a country to specialize to the degreee suggested by this model
-believes international trade is determined by producitivity

-concerns the role of innovation as an advantage in trade patterns
-the product may ultimately be exported back to the country of its orginial origin
-source of trade can happen in any country
-the locus of global production initially switches from the US to other advanced nations & then from those nations to developing nations

theory that sometimes countries specialize in the production & export of particular products not b/c of underlying differences in factor endowments, but b.c in certain industries the world market can support only a limited number of firms
-deals with the returns on specialization where substaintail economies of scale are present
-specialization increase output; ability to enhance economies of scale increases
-typically, requires industries with high, fixed costs
-world demand will support few competitiors
-first mover advantage
-very dominant countries due to high start up costs (Boeing)

- Trade is a general win-win, but there are some losers in the short-term. Also a move towards “managed” trade.
- Estimates of the benefits of trade: More than 10 percent of gross domestic product. This translates to a gain in annual income of about $10,000 per household. Unfortunately these payoffs from globalization are hidden within familiar channels: higher wages, lower prices and better product choices. This makes championing trade difficult.
- However currently many jobs lost to trade, especially in the manufacturing sector, are not being replaced with same pay

-should take care of our own people first (but, US is leading reciepent of FDI)
-race to the bottom for wages (but, why prevent developing countries from growing?)

A situation in which an economic gain by one country results in an econmic loss by another

Pattern of international trade is determined by differences in factor endowments

Us exports were less capital intensive than US imports

The absense of government barriers to the free flow of goods & services b/w countries