Theories of Theories of International Trade International Trade

InvestmentInvestment

Erik Kramer, Sam Dickey, and Erik Kramer, Sam Dickey, and Devin DraytonDevin Drayton

Comparative Advantage Comparative Advantage TheoryTheory

Definition: to gain a trade advantage, Definition: to gain a trade advantage, countries should specialize in products countries should specialize in products that it can provide more efficiently.that it can provide more efficiently.

This says that if a country can make or This says that if a country can make or grow a product easily and at a low cost, grow a product easily and at a low cost, they should specialize in it and trade with they should specialize in it and trade with other countries.other countries.

Comparative Advantage Comparative Advantage Theory cont…Theory cont…

Examples: If the United States has better Examples: If the United States has better soil for growing corn, and China has soil for growing corn, and China has better soil for grain. They can specialize better soil for grain. They can specialize the products and then trade with each the products and then trade with each other. other.

Product Life Cycle TheoryProduct Life Cycle Theory

Definition: The four stages that products or Definition: The four stages that products or services go through. services go through.

The four stages: Introduction, Growth, Maturity, The four stages: Introduction, Growth, Maturity, and Decline.and Decline.

Product Life Cycle Theory Product Life Cycle Theory cont…cont…

Example: The first computer it was first Example: The first computer it was first introduced and then everyone wanted one introduced and then everyone wanted one (growth). Then everyone had one. Then (growth). Then everyone had one. Then they came out with laptops and more they came out with laptops and more advanced computers.advanced computers.

Balance of TradeBalance of Trade

Balance of payments: All international transactions are recorded in this accounting statement.

Current Account: It has the records of the value of imports and exports from foreign nations and also income and payments.

Capital Account: It has the records of the investment funds coming in and out of the country.

Balance of Trade cont…Balance of Trade cont…

Example for Balance of payments, Current Account, and Capital Account.

We buying 200,000 iPods from Japan, this gets recorded in the Balance of payments and Current Account. Then we ask for a loan to pay for this import, which is Capital Account.

Balance of Trade cont…Balance of Trade cont…

When we buy goods from other countries our dollars are worth more over there which means they make more money than we do off of the same products.

Other countries believe that we have a stable economy. We are buying more than we are selling so the dollar is losing its worth and we are losing money.

The dollar is worth a lot to other countries so they are buying less and we are buying more.

Career Opportunities in Career Opportunities in International BusinessInternational Business

International International competition is competition is growing. growing.

More business are More business are going global to going global to increase sales increase sales and income.and income.

Career Opportunities in Career Opportunities in International Business International Business

cont..cont.. So they have to transfer their best managers So they have to transfer their best managers

overseas which increases costs. They have to overseas which increases costs. They have to pay for airfare, housing, and pre-culture pay for airfare, housing, and pre-culture training for managers being moved. training for managers being moved.

They also have to get paid more because they They also have to get paid more because they have to change their lifestyle and location. have to change their lifestyle and location.

Employment of Employment of International ManagersInternational Managers In order to be an international manager, you need

these traits:

Socially Flexible Acceptant of new ideas Be able to adapt to other Cultures quickly

It is good for managers to know the foreign languages because they can better communicate with local workers and consumers.