Theory in International Trade With Corrections

8/3/2019 Theory in International Trade With Corrections

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INTRODUCTIONCONCEPTMERCANTILISTABSOLUITE ADVANTAGE

COMPARATIVE ADVANTAGEHECKSCHER-OHLIN THEORYPRODUCT LIFE CYCLE THEORYCONCLUSION


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INTRODUCTION

When a nation thinks in an exchange

international of some product, too must thinks

the how and why of this exchange. In order to

find a answer more theory for this process, have

been created several models in the theoreticalliterature about international trade just for

provides explanations for the pattern

international trade and distribution of the gains

The causes and of international trade, theevolution the international prices, the

consequences international trade for tradenations, the political participation in trade

international


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CONCEPT

Between 100 and 1700 centuries, the mercantilisttried of encourage the exports and discourage theimports. Later the neoclassic economist AdamSmith developed the Absolute advantage theory,this theory is the first known for explain why is goodthe trade international unrestricted in a country,

before of this theory David Ricardo had developedthe comparative advantage theory. Other theory isthe of Eli Hecksher and Bertil Ohlin, develop thesecond theory had some failure and last product

life cycle theory develop for Raymond Vernonexplain this failure.


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MERCANTILIST

the countries must

encourage export anddiscourage the importbecause a nation shouldaccumulate financial wealth,

usually in form gold or silverthis is called mercantilist.Other measure was the

countries well being, suchliving standards or human

development are irrelevantthats why the developmentinternational trade wasrestricted

ALEXANDER HAMILT


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The mercantilist theory dont think in the well being hiscitizens, the simple view is: a country is powerful whenthis has great amount gold and silver, in order to thenon-economist restrict import and encourage the exportfor get wealth of their neighbors.

CONCLUSION


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ABSOLUTE ADVANTAGE

In 1776 Adam Smith

developed the theoryabsolute advantage, if acountry has an absoluteadvantage on goods o

services that other countryusing the same resources,this country should notrestricted development ininternational trade, in orderto get gains on an exchangeof good o services withneighbors countries

ADAM SMITH


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ABSOLUTE ADVANTAGE

In this theory there is a potential problem, if acountry havent an absolute advantage inthe production of any product, What will

happen with country?. In the comparativeadvantage maybe found the answer for thisproblem.


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In this graphic we can see the different combinations thatGhana could produce ,are represented is the line GG. Thisreferred to as Ghanas production possibly frontier (PPF),similarly with South Korea.


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When Adam Smith wrote The wealth of nations

explained that the wealth of a nation is on export andimport with their neighbors, should dont restricted theinternational trade, and if a country has absoluteadvantage of a product about other country and thisneeds product neighbors country, they could initiatea exchange, in order to each country specializes in theproduct that has absolute advantage.

CONCLUSION


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COMPARATIVE ADVANTAGE

This theory introduced byDavid Ricardo in 1817

explained concept in the

whole international trade

theories, when one country

must specialize in producing

and export in which it has

comparative or relative cost

compared with others

countries and must importthose products in which it has

a comparative disadvantage.


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For example, if, using machinery, a worker in one country can produceboth shoes and shirts at 6 per hour, and a worker in a country with lessmachinery can produce either 2 shoes or 4 shirts in an hour, each countrycan gain from trade because their internal trade-offs between shoes andshirts are different. The less-efficient country has

a comparative advantage in shirts, so it finds it more efficient to produceshirts and trade them to the more-efficient country for shoes. Withouttrade, its cost per shoe was 2 shirts; by trading, its cost per shoe canreduce to as low as 1 shirt depending on how much trade occurs (sincethe more-efficient country has a 1:1 trade-off). The more-efficient countryhas a comparative advantage in shoes, so it can gain in efficiency by

moving some workers from shirt-production to shoe-production andtrading some shoes for shirts. Without trade, its cost to make a shirt was 1shoe; by trading, its cost per shirt can go as low as 1/2 shoe depending onhow much trade occurs.


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Other example is the corea and Ghana

Other example is the South Korea and Ghana


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In conclusion about comparative advantagethe cause of international trade is thedifferent that exist between of workproductivity in the different countries

CONCLUSION


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HECKSCHER-OHLIN THEORY

This theory also called

Factor Proportions theoryemerged by two Swedisheconomists Eli Heckscherand Bertil Ohlin. The

Heckscher-Ohlin theorystresses that countriesshould produce andexport goods that requireresources (factors) thatare abundant in countryand import goods thatrequire resources in shortsupply.

BERTIL OHLIN


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HECKSCHER-OHLIN THEORY

In 1953, Wassily Leontiefpublished a study, where hetested the validity of theHeckscher-Ohlin theory. Thestudy showed that the U.Swas more abundant incapital compared to othercountries, therefore the U.Swould export capital-intensive goods and importlabor-intensive goods.

Leontief found out that theU.S's export was less capitalintensive than import.

ELI HECKSCHER


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In this theory explain like the countries has differentendowment on factors, thus there is countries that hasabundance in capital and others with abundance of work

countries richest in capital will export goods intensives incapital and countries richest in work will export goodsintensives in work.for example if a country has a big offer about a resourcewith relation at the offers the other resources, it mean thatis abundance in this resource at others resources , thecountry will export the resource that has the highest bid

CONCLUSION

PRODUCT LIFE CYCLE THEORY


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The product cycle model was applied to international contextby Raymond Vernon of the Harvard Business School in 1966..

In Vernon's model the introduction and establishment a newproduct is provided in the market follows three principalphases: high tech, growth and internationalization, andmaturity. These form the basis of a three-phase developmentfor multinational enterprises.

PRODUCT LIFE CYCLE THEORY


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Phase OneIn this stage, the innovatingfirm produces and marketssolely in the home market.The products depend on theapplication of advances in

science and engineering toproduct development. Theproducts generallycommand a high pricerelatively to direct costs.

PHASE ONE

MONOPOLY

IDEA AND PROMOTION

SALES


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The product is exported to foreign

countries. Initially, a firm exportsfrom the home country; gradually,production shifts to thosecountries with the largestdomestic markets, with firmserecting foreign plants and

assembly lines to supply localdemand.The firm's activity no longercenters on developing theproduct, but on refining the

means of production. With otherfirms continuing to enter themarkets as producers,competition increases and drivesdown both price and proportion

of price to cost.

PHASE TWO

PHASE TWO

COMPETITORS


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Standardization of the production process makes furtherreduction in production cost impossible. The market, whilelarge, is completely saturated with competitors, thus price

often falls to a bare minimum above costs.Firms can gain a competitive advantage only bymanaging factor cost, that is, by shifting production tothose countries in which the elements of production areleast expensive. The home country market now is supplied

primarily by production imported from offshore plants.

PHASE THREE


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PHASE ONE PHASE TWO PHASE TRHEE

MONOPOLY COMPETITION

IDEA AND PROMOTION COMPETITORS MORE PROUCTION DECLINE OF PRODUCT

SALES

COMPETITORS

INNOVATING FIRM


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CONCLUSION

Product life theory show like a country developed a new product

and this has three phases that make the product stable in thelocal market, and at the moment that try export this product, findthat local competitors can enter the same product almost thesame price therefore is better a investment in capital or goods forthis competitors

CONCLUTION


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CONCLUTION

Along of time the international trade theories tryto explain the essential about the trade,exchange of goods and services, benefits,strength and weakness abroad. This five theoriesshow like some economist, teach their viewpointabout the trade and what must to do a countryfor get gains international trade with differentpractices of business

Theory in International Trade With Corrections

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