Lecture International trade and investment: Chapter 3 - John Gionea

Chapter 3: International Trade Theory New Trade Theory US EU FACTOR ENDOWMENTS China Australia PORTER’S DIAMOND Copyright ©2003 McGraw­Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea 3­1 TOPIC PLAN: Mercantilism Absolute advantage Comparative advantage Comparative advantage versus competitive advantage Factor endowments The New Trade Theory Porter’s Diamond Copyright ©2003 McGraw­Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea 3­2 Mercantilism: mid­16th century A nation’s wealth depends on accumulation of precious metals (e.g. holdings of gold and silver). Theory says you should have a trade surplus. » Maximize exports through subsidies. » Minimize imports through tariffs and quotas. David Hume (1752): persistent trade surplus will affect the money supply and in the long run close the trade surplus Key problem: “Zero­sum game”. Copyright ©2003 McGraw­Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea 3 ­ 3 Theories of International Trade: Absolute Advantage The exporting country holds a superiority in the availability of certain goods. Reasons: » Climate,quality of land, and natural resources. » Differences in labour, capital, technology and entrepreneurship Australia Japan Beef (tonnes) 800 400 Computer Printers (units) 200 500 • Australia has an absolute advantage in beef, while Japan has an absolute advantage in printers. . Copyright ©2003 McGraw­Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea 3 ­4 Theory of Comparative Advantage David Ricardo (1817) One country has a comparative advantage over another in the production of a certain commodity if its opportunity cost of producing that commodity is lower Copyright ©2003 McGraw­Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea 3.5 ... - tailieumienphi.vn