Theories of International Trade and Investment Essay Example for Free

Theories of International guile and Investment EssayObjectives 1. Theories of international grapple and investment 2. why do nations trade? 3. How tramp nations enhance war-ridden advantage? 4. Why and how do firms internationalize? 5. How can internationalizing firms gain and sustain competitive advantage?Mercantillism belief popular in 16th century National prosperity results from maximizing exports and minimizing imports Nonmercantillism today some argue nation should run a trade surplus labot unions protect domestic jobs farmers keep crop prices blue manufacturers some rely on exports Free Trade absense of restrictions to the flow of goods/services among nations ** scoop up because it leads to more/beter choices for consumers/firms disgrace prices of goods for consumers/firms higher profits/better worker wages imported input goods usually cheaper higher living standards for consumers costs are lower greater prosperity in poor countries Competitive Advantage founda tion concept of international trade. Answers how nations can achieve and sustain economic success/prosperity Superior features of a country that provide it with unique benefits in global competition comparitive advantages are derived either from natural endowments/deliberate national policies **In a firm Distinctive Assets/competencies/capabilities that are developed or acuired Ex Saudi Arabia has a natural abundance of oil petroleum products Ex France climate/ mark for producing wine Absolute Advantage country should produce only those products in which it has absolute advantage or can produce using fewer resources that other country Comparative Advantage Beneficial for two countries to trade even if one has absolute advantage in the production of all products.**Efficiancy in which it can product the product is the most important Ratio of production costs is break This pplies to all goods shows how countried use scarce resources more efficiently Limitations of Early Trade Th eories Fail to account for international transportation costs Govts distort normal trade / selectively imposing protectionism (tarrifs) or (subsidies) Services some cant be traded. Others can be traded freely over internet Factor Proportions Theory Factor Endowments Theory each country should produce and export products that need high production Import goods that and dont need production** Leontief Paradox revealed that countries can export products that use less resources and be successful International merchandise Life Cycle Theory Each product and its associated manufacturing go through 3 stages of evolution introduction inventor country enjoys a monopoly in manufacturing/exports. Ex TV Set maturity Products manufacturing becomes standardized other countries start producing and exporting the product standardization manufacturing ceases in innovator country becomes net importor of the product. Totally under(a) globalization cycle occurs quickly New Trade Theory economies of scale are an important factor in some industries for superior international performance. withal in absense of superior comparative advantage some succeed best as their volume increases Ex commercial aircraft industry has very high quick-frozen costs need high volume sales to achieve profitCritical Role of entry in National Economic Success Innovation is KEY source of competitive advantage Firms innovate in 4 major ways 1. young product/improve an existing product 2. new manufacturing 3. new marketing 4. new ways of organizing Many innovative firms in a nation leads to national competitive advantageCritical Role of productiveness in National Economic Success productivity is the value of the output produced by a unit of labor or capital it is a key source of competitive advantage for firms the greater the productivity of the firm, the more efficiently it uses its resources aggregate productivity is a key determinate of the nations standard of livingMichael Porters infield Model Sources of National Competitive AdvantageDiamond Model Factor Conditions quality and quantity of labor, natural resources, capital, tech, know-how, entrepreneurship, other production Ex an abundance of cost-efficient and well educated workers give china a competitive advantage in the production of laptops Related Supporting Industries presence of suppliers, competitors, complementary firms that excel at heart a given industry Demand Conditions at home strengths and sophistication of customer demand firm strategy, structure, and rivalry the nature of domestic rivalry, and conditions that determine how a nations firms are created, organized, and managed Industiral Cluster suppliers/supporting firms from the same industry located within the same geographic area strong cluster can be sxport weapons platform for a nation Proactive economic development plan employed by the govt. nurture/support promising industry sectors with potential for regional or global dominance Tax Incentives M onetary fiscal policies Rigorous educational system Investment in national infrastructure strong legal restrictive systems