1、International Business Topics Unit 1.International Trade TheoryGoals of the Lecture:1.Identify those major theories of international trade 2.Understand the implications of the theories to businessesWarming-up Questions1.Can you list some international trade theories?What do you know about them?2.Why
2、 do we learn trade theories?What benefits can we get by learning these theories?What do trade theories tell us?nBenefits of international tradeshow why countries should trade for products/services even when they can produce them domesticallynPatterns of international tradeshow why countries speciali
3、ze the way they donRole of governmenthelp articulate the role of government policyAn overview of trade theory developmentnEarly thinking:Mercantilism,mid-16th centurynAdam Smith:The theory of absolute advantage,1776nRicardo:The theory of comparative advantage,1817nHeckscher-Olin theory:1950snProduct
4、 Life Cycle Effects mid-1960sn“New”Trade Theories,1970snPorters Diamond:national competitive advantage,19901.Mercantilism(mid-16th 17th)重商主义nBasic doctrine:A trade surplus will benefit a country,increasing its national wealth(gold&silver as currency)&prestige.nGovernment intervention:Policies which
5、maximize exports and minimize imports subsidies tariffs"asWhat is its argument?David Hume(1752)Critique on mercantilismnLong-run surplus is impossible.nFundamental weakness:Trade is seen as a zero-sum game(a gain by one country results in a loss by another)If England had a trade surplus with Fra
6、nce,Inflation Expensive goodsExport decreased Contraction Cheaper goodsExport increasedEnglands trade balance would deteriorate,whileFrances trade balance would improve.Result:nAlthough discredited as a theory,mercantilist thinking is still very much alive so called neo-mercantilism:nA phenomenon at
7、 the Uruguay Round of negotiations on GATT and Doha Round in WTO:The approach of individual negotiation countries,both industrialized and developing,has been to press for trade liberalization in areas where their own comparative competitive advantages are the strongest,and to resist liberalization i
8、n areas where they are less competitive and fear that imports would replace domestic production.nLogic Economic powerPolitical Power A Balance-of-trade surplusInstruments of Trade PolicynTariffs nSubsidiesnImport quotas(and“voluntary”export restraints)nLocal content requirementsnAdministrative trade
9、 policies(bureaucratic hurdles,eg.Trade ban,standards)TBT:Technical Barriers to tradeSPS:Agreement On The Application Of Sanitary And Phytosanitary Measures2.Absolute Advantage Theory nAdam Smith(1776)attacked mercantilism:Countries differ in their ability to produce goods efficiently.Thus,a country
10、 has an absolute advantage in the production of a product when it is more efficient than any other country in producing it.Countries should specialize in the production of goods for which they have an AA,then trade these goods for the goods produced by other countries.Both countries benefit from int
11、ernational trade(a positive-sum game).nAdam Smith advocated:specialization&free trade The Wealth of NationsDavid Ricardo:nQuestion:What might happen when one country has an absolute advantage in the production of all goods?nAnswer:It still makes sense for such a country to involve in international t
12、rade.Principles of Political Economy3.Comparative Advantage Theory nDavid Richardo(1817):Assertion:Countries should specialize in the production of those goods that it produces most efficiently,and to buy the goods that it produces less efficiently from other countries.Free trade:a positive-sum game
13、.It leads to greater potential world production.Consumers in all nations can consume more if there are no restrictions on trade.This occurs even in the case of countries that lack an AA in the production of any good.nDavid Richardo advocated:specialization&free tradeAdam Smith vs.David RicardonSmith
14、 believes that trade occurs when a nation can sell items at a lower cost.nRicardo argues that trade occurs when nations can sell items with different costs.Extensions of the Richardian ModelnTwo assumptions to be relaxed:1.The assumption of constant returns to specialization2.The static assumption t
15、hat trade does not change a countrys stock of resources or the efficiency with which it utilizes those resources.1.Diminishing ReturnsnAssumption of constant returns to specialization:the units of resources required to produce a good are assumed to remain constant no matter where one is on a country
16、s PPF nReality:Diminishing returns to specialization output increase leads to increased consumption of resource nReasons:vunequal quality of resourcesvdifferent proportion of resources for different productsProduction Possibility Frontier Quantity of civilian goodsquantity of military goodsAttainabl
17、e combinationUnattainablePPFillustrate 3 concepts:scarcity,choice,opportunity costConclusions:Diminishing Return to SpecializationnIt is not feasible for a country to specialize to the degree suggested by the simple Ricardian model.nGains from specialization may be exhausted before specialization is
18、 completed.nMost countries do not specialize(produce only one good),but produce a range of goods.nIt is worthwhile to specialize up until that point where the resulting gains from trade are outweighed by diminishing returns.2.Dynamic Effects and Economic GrowthReality:free trade brings dynamic gains
19、nStock of resources:Free trade might increase a countrys stock of resources as increased supplies of labor and capital from abroad become available for use with the country.nResource utilization efficiency:Free trade might increase the efficiency with which a country utilizes its resources.Economy o
20、f scaleImported technologyForeign competition 4.Heckscher-Ohlin TheorynComparative advantage arises from a different source production factorsRicardo:comparative advantage stems from differences in productivityHeckscher-Olin:comparative advantage arises from differences in national factor endowments
21、the extent to which a country is endowed with such resources as land,labor and capital.4.Heckscher-Ohlin TheorynDifferent nations have different factor endowments,and different factor endowments explain differences in factor cost.The more abundant a factor,the lower its cost.nH-O theory:countries sh
22、ould export those goods that make intensive use of those factors that are locally abundant,while importing goods that make intensive use of factors that are locally scarce.4.Heckscher-Ohlin TheorynFactor endowments determine pattern of international trade Is it always the case?The Leontief paradox 列
23、昂惕夫反论nHecksher-Olin is intuitively appealing but fails in explaining the real world trade pattern.Factor intensity reversal 要素密度逆转 Agricultural goods may turn into labor-intensive from land-intensive in China,thus export to U.S.This violate HO theory.美国经济学家，在研究美国生产与出口后得出与俄林理论完全相反结论。5.Product Life-Cy
24、cle Theory Sales Sales&profit($)ProfitsLosses/investment($)Development Introduction Growth Maturity DeclineTime0Raymond Vernon Prof of HBS.U.SVernon:Product Life Cycle TheoryAs products(markets)mature,both the location of sales and of(optimal)production change,thereby affecting the pattern of export
25、s and importsFor many,especially technology products,the pattern is:US Other advanced countries Developing nations USIt also proves H-O theorys flaw.Trade pattern based on PLCStage 1.US starts new products at home&a net exporterStage 2.Demand grow in other advancedcountries Stage 3.Standardized&matu
26、red marketLimit export from US.Stage 4.Advantage lost to developing nations,US a net importer6.“New”trade theory(1970s)nOrigin:questioning of the assumption of diminishing returns to specialization.nInstead:economies of scale fostered increasing returns to specializationnThe principle of comparative
27、 advantage is undermined by first-mover advantagenThe new theory identifies an important source of comparative advantage.“Economies of scale”refers to the cost advantage that arises with increased output of a product.Economies of scale are reductions in average costs attributable to production volum
28、e increases.Economies of scale are primarily derived by spreading fixed cost over a larger output.What does“economies of scale”mean?What is first-mover advantage?Early entrants into an industry may get a lock on the world market that discourages subsequent entry.The ability of first-mover to reap ec
29、onomies of scale creates a barrier to entry.First-mover Advantage TheorynThe theory suggests that a country may predominate in the export of a good simply because it was lucky enough to have one or more firms among the first to produce that good.at variance with H-O theory not at variance with compa
30、rative advantage theorynGovernment intervention:strategic trade policy subsidies7.Porters Diamond:National Competitive AdvantagenOutgrowth of“new”trade theoryn Four national attributes:factor endowments demand conditions relating and supporting industries firm strategy,structure,rivalrynTwo addition
31、al variables:p government p chance Porters Diamond Implication of Porters DiamondnThe diamond explains why a nation achieves international success in a particular industry.nFirms are most likely to succeed where“the diamond is most favorable.”.nThe diamond is a mutually reinforcing system.The effect
32、 of one attribute is contingent on the state of othersWhy do governments intervene?“protecting jobs and industries”“protecting industries vital for national security”as part of a“get tough”policy to open foreign markets“strategic”trade policy:protecting infant industries,aiding first-mover advantage
33、,overcoming barriers to entry Business firms and Trade TheoriesBusiness decisions concerning:nProduction locationnFirst-mover advantagenGovernment policy on competitivenessHow are the various international tradetheories related to the 3 subjects on the left?8.Implications for businessesnLocation Imp
34、licationsnFirst-Mover ImplicationsnPolicy ImplicationsLocation ImplicationsnThe notion underlying most trade theories:Different countries have particular advantages in different productive activities.nImplications:A firm should disperse its various productive activities to those countries where they
35、 can be performed most efficiently.First-Mover ImplicationsnNew trade theory:Firms that establish a first-mover advantage with regard to the production of a particular new product may subsequently dominate global trade in that product.nImplications:It pays to invest substantial financial resources i
36、n trying to build a first-mover advantage,even if that means several years of substantial losses before a new venture becomes profitable.Policy ImplicationsnTheories:Free trade Trade restrictionsnImplications:Business firms play a pivotal role in international trade.They can and do exert a strong in
37、fluence on government trade policy.By lobbying government,business firms can help promote free trade,or they can promote trade restrictions.Key termsnMercantilismnQuotanZero-sum gamenPositive-sum gamenDiminishing returnsnFactor endowmentsnProduct life cyclenEconomies of scalenProduction possibility frontiernFirst mover advantagenBarrier to entryn重商主义n配额n零和博弈n正和博弈n收益递减n要素禀赋n产品生命周期n规模经济n生产可能性边缘n占先者优势n准入障碍
