International Trade & Factors Mobility Theory

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International Trade & factors

mobility theory Jos Pablo Mondaca

Alexander Vega


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THEORY OF INTERNATIONAL

TRADE AND FACTOR MOBILITY

Laissez Faire O INTERVENTION IN IMPORTS

AND EXPORTS

There are policies that determine which countries

can produce some goods more efficiently and

whether to allow imports compete with the

domestic product. Other countries prefer that the

market is balanced by the "invisible hand" or

Laissez Faire.


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THEORIES OF TRADE PATTERNS

How can the countries depend of trade?, what is

trading?, who is trading?

MOBILITY OF FACTORS THEORY:

The stability and dynamics of the competitive positions

of countries depend on the quantity and quality of

factors of production (land, labor, capital, technology).


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INTERVENTIONAL THEORIES:

Government intervention by protectionism

Mercantilism:

It argues that the wealth of a country is measured by its holdings of"gold". These countries need to export more than they import.

Government Policy: Restrictions on most imports and subsidies to themanufacturing of products.

Trade balance concept: Indicates that a country exports more than itimports. Operate with a favorable balance of payments is notnecessarily beneficial.

The country with supperhavit that spend money in deficit country, if thiscredit can not buy enough for goods and services, favorable balancemay be disadvantageous to the country in superhavit.

Neomercantilism: The country that practices neo-mercantilism, is tryingto operate with a surplus of exportation to achieve a social or politicalobjective.


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THEORIES OF FREE TRADE: Countries need to negotiate because they are not self-sufficient through local

production of goods and services. Nations should not artificially limit imports orpromote exports, the invisible hand determines that producers survive, as consumers

buy the products that best meet their needs.

THEORY OF ABSOLUTE ADVANTAGE

Through specialization, countries can increase efficiencies due to 3 reasons: - Labor

- Improved by duplication

- Workers waste no time in changing different productions. The long

production runs encourage more efficient working methods.

Following this logic, a country could use its specialized production surpluses to buymore imports that have occurred.

Natural Advantage

- Terms climatologies

- Natural Resources

- Labor forces


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Acquired Advantage

Are the countries that produce manufactured goods andservices in a competitive manner (product technology orprocess).

THEORY OF COMPARATIVE ADVANTAGE

Countries that can produce more efficiently, no matter thatother countries can produce the same but more efficiently.

Comparative Advantage By Analogy It produce a more efficient and exchanged for products stopped

producing.

Free trade can increase combined production between countries


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THEORIES OF EXPERTISE, ASSUMPTIONSAND LIMITATIONS

-Full Employment

-Economic Efficiency

-Division of profits

-2 Countries 2 products

-Transportation costs

-Statistics and dynamics

-Services

-Red of production

-Mobility


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GUIDELINES ON TRADE THEORIES

How many products trade a country?

Country size theory

Economy size

What kind of products trades the country?

Factor proportions theory

Labor and land

Manufacturing sites

Capital, wage labor and specialization.

Process technology.

Product Technology

Who trade with the country?

Analog countries Theory

Specialization and advantage gained.

Product differentiation.

The effects of cultural similarity.

The effects of political relationship and economic agreements

The effects of distance

Saving the distance.


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THE STATIC AND DYNAMIC

TRADE There are two theories:

Product Life Cycle

Porters Diamond Theory Explain how countries develop, maintain and lose their

competitive advantage.


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PLC THEORY

The place of production of many products moves fromone country to another depending on the stage of theproduct life cycle.

Stages:

-Introduction

Innovation to the response observed.

Export by innovative country

Evolution of product characteristics


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-Growth

Increase the exports of innovative country

Increase of competitors

Increase capital intensity

Increase Price competition.

-Maturity

Decline in exports of innovative country

Standardization of the product

Increase capital intensity

Increase price competitiveness

Start of production in emerging economies


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-Decline

Concentration of production in developing countries

An innovative country becomes a total importer


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PORTERS DIAMOND

He says that there are 4 important conditions forcompetitive superiority

Demand conditions: Start businesses near to the market

production observed, eg.: Ceramic tiles industry,Italians after the Second World War.

Factor conditions: advantages of cheaper factors

Related and supporting industries: The existence ofindustries which can supply us.

Strategy, structure and rivalry of the company:combination of the 3 conditions that influence thedecision making . Create strategies depending onwhat the other companies do


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FACTORS MOBILITY THEORY

The last analysis indicated that the factor conditionsvary in quantity and quality. When this occurs, therelative capabilities of countries also vary, eg.: If a

country sabe money, it will have more capital inrelation to the factors of land and labor.

These changes are important to understand andpredict changes in the location of the export andimport markets of production. At the same time themobility of capital, technology , labor ,affect the

competitive positions.


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WHY FACTORS MOVE?

Capital has more mobility internationally. Companiesand private equity transferred mainly to takeadvantage of differences in expected returns.

Currently the information on the differences in interestrates is easily accessible and can make electronictransfers capital almost instantly and inexpensively.

Political and economic conditions affect investorperceptions about the risk and where to invest theircapital. At the same time companies invest long term

to exploit overseas markets and take advantage of lowoperating costs.


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Labor: people also have international mobility but lessthan capital

There are two reasons:

Economic: People whether professional or unskilled,work in another country for economic reasons

Political: People also travel for political reasons suchpersecution or danger of war


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RELATIONSHIP BETWEEN TRADE

AND FACTOR MOBILITY The movement of the factors is an alternative to trade

or not, it may be a more efficient distribution ofresources.

Substitution: when factor proportions vary betweencountries, there is pressure for more abundant factorsto move to countries with a shortage that is where theycan get more performance.

There are restrictions on factors that allow only partial

displacement internationally ,and in the case of U.S.restrictions on immigration.


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Complementarity: The movements of the stimulatingfactors can replace or trade. When companies investabroad these investments often encourage exports to

their countries of origin.

International Trade & Factors Mobility Theory

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