Ch. 5 INTERNATIONAL TRADE - PowerPoint PPT Presentation

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Ch. 5 INTERNATIONAL TRADE

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  1. Ch. 5 INTERNATIONAL TRADE By Wild, Wild, Han

  2. I. TRADE TASTES GOOD • A. GROWING TRADE AND INVESTMENT IN AFRICA • South Africa, Botswana, Ghana, Nigeria, Mozambique, Uganda • US trade with Africa = $10B • B. COCA-COLA THROUGHOUT AFRICA • CC in all countries except Libya and Sudan • Tremendous growth potential • Sales start with case on the street • Then kiosk • Then back door of small shop • Other stores • Distribution • Warehousing • Multimillion dollar business

  3. II. OVERVIEW OF INTERNATIONAL TRADE • A. BENEFITS OF INTERNATIONAL TRADE • More choice • Lower prices • More efficient use of resources • Creates jobs • B. VOLUME OFINTERNATIONAL TRADE • World merchandise exports $5.5 T • World service exports $1.4 T;20% of trade • Trade is growing faster than output • C. INTERNATIONAL TRADE PATTERNS • Trade between rich countries – 60% • Trade between rich and poor – 34% • Trade between poor countries – 6%

  4. D. TRADE DEPENDENCE AND INDEPENDENCE • Developing nations dependent on developed neighbors • Developed countries combine their T and neighbor’s low wages • Dangers of trade dependency • Export recession • Increased trade leads to increased dependency • III. THEORIES OF INTERNATIONAL TRADE • A. MERCANTILISM • Accumulate wealth by exporting morethan importing • Take in more gold than give up for imports • Government subsidizes export firms • Colonization: acquire LDCs to supply raw materials • Flaw: cannot work, all nations cannot have surplus • Trade is zero sum game

  5. B. ABSOLUTE ADVANTAGE • Ability to produce a good more efficiently than other nation • Concentrate on producing that good and trade for other goods • End up with more goods and choices of goods • Price drops and quantity produced increases • Trade is positive sum game • C. COMPARATIVE ADVANTAGE • Ricardo, 1817 • Country produces good more efficiently than other goods • Produce that good and trade for other goods • Gains from specialization and trade • More goods produced • Lower prices

  6. D. FACTOR PROPORTIONS THEORY • Countries export goods made from abundant resources • Import goods made from scarce resources • Produce labor intensive products when labor cost low • Produce capital intensive products when capital cost low • Leontief paradox: US statistics don’t support theory • E. INTERNATIONAL PRODUCT LIFE CYCLE • New product stage: buyers demand new product • Maturing product stage: domestic demand strong • Standardized product stage: foreign production; re-export • Limitations of theory: new productscome from all over

  7. F. NEW TRADE THEORY • Gains from specialization and trade • First mover can create barriers • Introduce product all over at once • Not enough data to judge accuracy of theory • G. NATIONAL COMPETITIVE ADVANTAGE • Nation’s competitiveness in industry depends on the capacity of the industry to innovate and upgrade • Porter, 1990, Porter Diamond • Factor donditions • Demand conditions • Related and supportingindustries • Firm strategy, rivalry