Theories of International Trade and Investment Essay Example for Free

Theories of International Trade and Investment EssayObjectives 1. Theories of planetary trade and investment 2. why do nations trade? 3. How can nations enhance competitive advantage? 4. wherefore and how do firms multinationalize? 5. How can globalizing firms gain and sustain competitive advantage?Mercantillism belief popular in 16th century National prosperity results from maximizing exportings and minimizing imports Nonmercantillism today some argue nation should exsert a trade surplus labot unions protect domestic jobs farmers keep crop prices high manufacturers some entrust on exports Free Trade absense of restrictions to the flow of goods/services among nations ** Best because it leads to more/beter choices for consumers/firms lower prices of goods for consumers/firms higher meshing/better worker wages imported input goods usually cheaper higher breathing standards for consumers costs be lower great prosperity in poor countries Competitive Advantage foundatio n concept of international trade. Answers how nations can achieve and sustain economic success/prosperity Superior features of a rustic that succeed it with unique benefits in global competition comparitive advantages are derived either from immanent 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/soil for producing wine Absolute Advantage country should produce only those products in which it has imperative advantage or can produce using few resources that another 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 all-important(prenominal) Ratio of production costs is key This pplies to all goods shows how countried use scarce resources more efficiently Limitations o f beforehand(predicate) Trade Theories 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 everywhere internet Factor Proportions Theory Factor Endowments Theory each country should produce and export products that contract 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 Product 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 standardisation manufacturing ceases in innovator country becomes net importor of the product. Totally under globalization cycle occurs q uickly natural Trade Theory economies of scale are an important factor in some industries for superior international performance. Even in absense of superior comparative advantage some succeed best as their loudness increases Ex commercial aircraft industry has very high fixed costs need high heap sales to achieve profitCritical reference ofInnovation in National Economic achiever Innovation is KEY source of competitive advantage Firms innovate in 4 major shipway 1. new product/improve an existing product 2. new manufacturing 3. new marketing 4. new slipway of organizing Many innovative firms in a nation leads to national competitive advantageCritical Role of Productivity 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 s tandard of livingMichael Porters Diamond Model Sources of National Competitive AdvantageDiamond Model Factor Conditions quality and bar of labor, natural resources, capital, tech, know-how, entrepreneurship, other production Ex an abundance of cost-effective and well educated workers give chinaware a competitive advantage in the production of laptops Related Supporting Industries presence of suppliers, competitors, complementary firms that exceed within a given industry Demand Conditions at home strengths and sophistication of customer make 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 selfsame(prenominal) industry located within the same geographic area strong cluster can be sxport platform for a nation Proactive economic development plan employed by the govt. nurse/support promising industry sectors with potenti al for regional or global dominance Tax Incentives financial fiscal policies Rigorous educational system Investment in national infrastructure strong efficacious regulatory systems