Lecture International marketing: Strategy and theory - Chapter 2: Trade theories and economic development

This chapter explains the rationale for international trade and examines the principles of absolute advantage and relative advantage. These principles describe what and how nations can make gains from each other. The validity of these principles is discussed, as well as concepts that are refinements of these principles. The chapter also includes a discussion of factor endowment and competitive advantage.

Chapter 2

Trade Theories and Economic Development

Chapter Outline

 Basis for International Trade

- Production Possibility Curve

- Principle of Absolute Advantage

- Principle of Comparative/Relative Advantage

 Exchange Ratios, Trade, and Gain

 Factor Endowment Theory

Chapter Outline

 The Competitive Advantage of Nations

 A Critical Evaluation of Trade Theories

- The Validity of Trade Theories

- Limitations and Suggested Refinements

 Economic Cooperation

- Levels of Economic Integration

 Economic and Marketing Implications

Basis for International Trade

- a country should export a commodity that can be produced at a lower cost than can other nations

- or import a commodity that can only be produced at a higher cost than can other nations

Basis for International Trade

Advantage

- a country should export either a product with the greatest comparative advantage (or with the least comparative disadvantage)

- or import either a product for which it has the greatest comparative disadvantage (or the least comparative advantage)

Factor Endowment Theory

 Factors of Production

- labor

- land

- capital

- others (technology, education, etc.)

factor endowments

abundance of such endowments

Michael Porter The Competitive Advantage of Nations

Competitiveness

- factor conditions

- demand conditions

- related and supporting industries

- firm strategy, structure, and rivalry

- chance

- government

Validity of Trade Theories

 Leontief Paradox

to trade among themselves

 Offshoring

 Factor Mobility and Substitution

 Demand

 Marketing

 Trade Barriers

Levels of Economic Cooperation

 Free Trade Area

 Customs Union

 Common Market

 Economic and Political Union

 Political Union

Economic Cooperation

- elimination of internal duties

- free trade area + establishment of common barriers

- customs union + removal of restrictions on movement of production factors

Economic Cooperation

- common market

- + harmonization of national economic

policies

- + one money

- harmonization of national political policies