Chapter 5. The Theory of Trade and Investment. Learning Objectives. To understand the traditional arguments of how and why international trade improves the welfare of all countries
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The Theory of Trade and Investment
The evolution of trade into the form we see today reflects three events:
The Collapse of Feudal Society
The Emergence of the Mercantilist Philosophy
The Life Cycle of the Colonial Systems of the
Developed by Eli Heckscher
Expanded by Bertil Ohlin
A country that is relatively labor abundant (capital abundant) should specialize in the production and export of that product which is relatively labor intensive (capital intensive).
Could Factor Proportions Theory be used to explain the types of goods the United States imported and exported?
The U.S. exported labor-intensive products and imported capital-intensive products.
Findings were the opposite of what was generally believed to be true!
The New Product
The Maturing Product
The Standardized Product
Two New Contributions
Krugman’s Economics of Scale:
Internal Economies of Scale
External Economies of Scale
The Four Circumstances Involving Imperfect Competition:
Porter’s Diamond of National Advantage