TabornduinaD Prinses Rug rae vessaunn INTERNATIONAL TRADE “TE MPORTANGE OF INTERNATIONAL TRADE Js chapter nano ndumental quesins oration! aes) Tie dtm tc exe compotion, ure. ana erin aa tse energie Seige nal ors oer use ea he maz the wei Stonlor ts enseediexporg and importing thn hat comet ‘Seton are ancibudlerin chap. Te objet te cars canara of trata tage fom the vewpsn of a et a dng ofthe determinants affects af ntemationel tad ints magn neranal eal imgoet toni Tass Tecxpenon of trad rated the economic gow can coal Seomomy Hol, Trades to svuctral ss Inte ‘any gran acount an ths vie new opportanitesto ft sxe camer inser the abip of ution neue x oP rine and ropa por ra major ermine Soran. a international ade is usually the first phase of interpational operat as sett helen tote seen oon et EAS (Seiten (71). an ein Te ave of world Wa a tiie ler wre of neroaoalopertns. Teal Wo soPtiest nin st eonpure oa lw of FD faut oon fox a Dering the potas poi, wold ade expanded cm- BORSA the and oie. Ono 181 ideation ae Dex 1 cine. This was a consequence ofthe word economic rcesion an the new Isstions polices being adopted in many counties. Ul thi situation i ‘reversed the economies of allway rations, andthe frtons of meio within them, sl eomtnue to deine Tui important for ations, individual, and Sms to understand the basi of made, Everyone his a stake in world tad, and i is necessary to respond Consrutively, po destructively, changes nthe mord trade envientoen. The ‘lysis of de comained i ths chapter can help the reader Lo devo a0 ‘understanding ofthe determinants af tade fos in the el work and the pin 8nd losses that ade brings to nations and fee “Trade theory is also lnpotant snc form oe of the concep piles on hich hs book buds the theory an practioeofintrnational busines fa wom ‘ith flinfrmatio, perfect erapettion, and no barr. tae iterators business would require only a study of international trae an itematonal «pital movements. Foreign dtet ivestment i lcensing ould ot ae at ‘modes af ineratona operations. Tote extent that he real world ifs fom thesized modelo ec ae and pene competison seveloped here, FDI and ening become important methods of operating inteatonaly ‘When rade doe not occur as tesut of such natal mate eperestions as transition cos or aifaycteted artrs (such a ani). opportunites satis for international managers to benefit from FDI and sntrcenlaange ‘ments Conversely, when economic condone move foward feet Wale aed eve eompestion, internation trade bsomes the mote efilen method of ‘perting iterationay. Examples of such trends in iterator tess shone ‘Recenly, Japanese ring companies be increased thelr diet investments inthe Unita States and Europe in respons to Increasing trade proestion (of both the tart and wont ype). Some U.S. mulinatsnateeeypises ave view trom frcgn direct vestsens im rexponse tothe eroton ofthe ‘ompetine postions {such as firm-specific advantages (FSA) in proprietary technology} Interaational trade, therefore san integral pat of infest busines: Anundertanding othe forces tha dive and distort rade andar {a Tor international business options "Thischapter develops models hat explain th bass and eects ofa, Istars withthe ates and sinplesttheores of trade and moves toward more rece ant ‘more realistic modes The older modek o trade are included since many gover ‘ment poy and busines decisions ae formulated (often uovitingh) felon {such theories, Thiscan eed to questionable government ples aninetient Dusiness decison Chapter 3 introduces tris and nowt hares otade inthe madel of ie. It ustats ther effects on national were, efieny, and uses Aesisions. Chapter 10 describes and analyzes the interstional orgtizatons that inuence world uade and ternational busines.28 pan. TENATUN OF NIERUATENALODENESS 80 TRADE {THEORIES OF TRADE “Two of Maarten “The sym of mete prado Europe daring the svetenth and “pcan eres wen modern ation sates wee begin odetelp. The iobot he meres henyofeadearfolos Toc poet andengh os Intone nd espe fs yovvoment nese athe maton neal nese. Tewealte atone savulen ienessthe ant o ght poses ince, Caps cas anton gl stock shy gener flown of 8 Ste pore reduce he geld stock gol ot te nabon. Sevan Tons exper ae yoo and shal be promoted hi port re S2SGad utd be imped. cng tots hor. the ate tomas amin sits welling and pose! aces ith weal here wah ‘rene by Spning (npr) ad ens y revenue esp) Senor or he meres iw ofthe wore wasnt aia Bd, Rae wth gold couldn pay slr to efors hr poo against he many IMenator cra supers tat et hom. Nato wou od cul ether {Sedo veg atact for pes he arora! tre Dyan te border ‘Go waste nectunsn anetomobitonoalesnursrt protect anderen the duo suppor for he meranliic tem, and pis bse on his theory wan foun the npatol Cade on domesic rosin odempoye apo denonstbiy ined demene production a roe os for so nec rhe hie mprieme'emunoscpace dames production alr Gitsmom ajo Trade oe war denied to minim he wr of he Tae ae hn of pre ops wth cet "Aegumens agin mercanon: tase ob th Enposibty of al mains simufancoy pug expo prometon and Inport estcion plies, were ran nade Has heupt i seston netics an bso oak ‘Scnetheinath by prodcingand selingmore strong tation should dohe Se. The wenh of weak, ster poigte maton woul ec. The ‘Sect ncry wos thes posse By and suporive ofthe pot om nyor eine. crate hnkng pest ody nw exten terms, Counts hat consent impr more tan they expat and del the sere gold {tren echoed themes at weak poison, a he mete] of een foes ark and sometimes frig toope Exampes of sh ecu ae isn Palen, Argentina snd Bul Tht economics suns or wat ‘reg echege hey ocd fo flow exosomie pls deed om Shroud andthe ints ace ished pola support of even forced “Rrowble example seen mercantile foundn France under he leabeshp of Ocha Cates de atl. Ina for to wre world comic {Ears and pone! eva rom the United Stas, So Gale ete ols {Ghent trenteapen nd impede impor, eset Amrian oducts He further insted thatthe payments deft of he Unite Sates wih France be dingo. Thismereanistiplicy hasbeen flowed lo aleser degree by de Gale's sucesor. ‘What, hens wrong wih mercantile trade theory and piy? Two Glas loathe center ofthe mercatiste theory. It isincoretia belive tat gold, snyoter ass, s values of tel Gold or oter amet, ha ale ony hes ts used or taded for other consumption of production goods Ha atom "changes productive astets and consumption goods in ores to aecumulat 1, itidecreaing its productive copay and watioalwellare in exchange for anid. ‘espace, that product that cantor be conuined or use i production “Thesecond and more telling allay th merci theor esis lle to ecoprize the potential gts in economic welae (efeieney) tat arise fom {he comparative advantage (speciation) of using the nations esoureos athe most effint manne. ven the objective of aton were to ierease is gold Stock an emphasis on exporting ae impor subsititin i the wreng pabey presctpton. At any one pots in time, a nation as a ited stock ot human, aptly echlogical, snd natural resources salon allots these fe ‘Sure neem, economie well bing ses than opi Hines resonress Tan extreme example (yet one that actully happened) can be etd. When Canad fostered the development of» domes picappl industry. diverted Ton labor, and capt rm more efcient wre eewhere For these pineapples tobe marketed in Canade pineapple rom abroad nado be exci. Camda ‘woul hve been beter fa the rsources devoted to pineapple production had een diverted tothe production of whest in which that county har comparative ‘dvuntge, Some ofthis went could have been exported in xchange For more ‘hon a sfcient quantity of pineapples. We maven to eapain the reasons fr “Arguntent guns mercantile theory and pot, simile to the one shove, ssereadvancedy th casel economist Adan Smith and David Rstdo Seth {ged that te consumpion of el goods cou e incensed by fe rede and ‘hatte aceuouliton of old or sown sake was poise, These concepts ae expand by Smiths theory of absolute advancage* “Theory of abso Aevarage ‘The concept of absolute advantage is intltively appeaing states that by specializing in he production of te good a whieh a pation most cen the nnton canineresse ts welfare through interationa rade gine ewe ce peduve sae ctrevonencts een "Aa Sith An Ing in he Nature ond Case of he Weal of Nos, Landon, 178.128 PARTS HENATURE OF RTEWTCHAL MUSNESS: ES AND TALE ‘A simple example llsates this point, Let s asm that 0 and South te bth able to produce wo goods, cthand grain, Assume further {hat labor the ony saree factor of production and ence the ony cost of prodocton. sson cost MoURs) OF PRODUCAIN FOR OME UNIT Not tht anton doing mlliths wenber of borhous pe nit of proucton there crf production Ts lar tht North is a reste mvctag nine prsuaon of ct, se the cos egies oy 10 aaa compe 20 aor hour ip Soh Siar South as an sho Wmeaaoage tthe podacon of grin whic produces a a cost of 1 Itrtours, ompeed fo 20 lor Aousm Nor Punters aby tae they spc an exchange ofr grin ats rekinepcerageclL1 Noricanemploymote cioresoures pros bh weet csoures to poche rin Non can port one wih saree stone tr ne unt of Cth thereby “paying” mate ony 10 Enno tor one unit of gram. 1thad rouced the an tel, Nowh woul ve ue 20 bor hors st ans 1 borbrs om tea iar ree aga om rede een porn ae i of sot eachange or eSbow oon ntl The ict costo Seu for one unto lohs Sig the Tota hous equred to makes one unt ofan ‘atic otto advontagssrongnaly omits, desnotprdist he cexthing so eween doth an grin ome ade opened, no does soe Sear i gan om ae tore the tw counties, THe xl wp tana! pce a Lb fra Pag © Py) cd Teer tne prea pri atoin Sout) and 2 (he eta pre aio soe Fr ena oe i et a es. vert fel oun ta labor hur sve pr ear) ad the ates ces yon Detain ncaa etermines throat trom rae feecach county ‘een rk coporating cach county 'relatt preference nthe consump son oth or grim hax showo thatthe lager ope oust relative 1 treat pester ie kcoed ofthe ae-ade pce to aprenching {he ptade perth lrgercounty Inch stuaonthe gains romseade ‘Wealth hnger county Teoune ope mei ef aso advantage os several rama impli sous Tit hereacubigons gans om tae provide thee ae erent x pment rch and granite two eran efre aeons, a Sent scm ete ou es realy fin, he ereater are its potenti sins nation elf. This Conus en det eonrion (oe mecca) Ted ithe ‘hfe of coontry were fo aecomulae gol, bet rtegy oul stl eto {tae recy, bt then forthe government ox ay the gaia rom ade (nthe form of cloth and when) and exchange hese goods or gold. Fourth i one country the gins fom tae ae rarely even dist by the competitive market Thi fs mpkaton I strated by the folowing exams Frio totrade i gin producrsinNoth worked 20hours, hey would produce ‘on unit of pan that could e exchanged for we wits of oth, ter rade he fan predaers who remain can exchange only one nit of rain for one uit ot ‘oth, Theremsning grain producers te worse of under ade, Cloth prods imNorh, however, wrk ldhous produce oe uni of loth and exchange i or thc unt of gain, shores prevouny hey reed only nba nk ot pe Tey Se ere oti gam procucers i North switch to hth production het 20 touteofabor ests in production a two unite of oth, wih they ca exchange fortwo ons of gran. Thy are biter of under international tae. As ang ss ‘Noth does not specialize completely ilo there wil be pers (6th profhe ‘rand ao ge producers who swched io cath) andlor, hose who conte {pan producer rc the etion as who benefs rom ade, he gers coulomperste te ler, and thete would sil be surplus Tobe Stabe in some way. TE Station os nee pl: hovee, he nin an ‘drm ve an cetve to prevent he country Gom opening el fo ttade. This pros, which the model of absolute vantage Nght, hat Plagued attempts government to move foward fre trae poly by Teding Eres wo race "A more complicated picture of he determinants and ees of ade emerges whew ont of te wating partnors hasan abuse vantage nthe proc o ‘oth ends Tad under thes condtins ail rings gas, 38 David card st emonstratd in is theory of emparatve advantage “Towory of Compartive Advarene Ricardo’ mode! wsfin ilteating the gains from trade from comparative ‘vantage. In terms ofourpesious example of two countcs, North and South, find two coltmodies, cloth and grin, Ricardos mol can be sete a Lago cost NOURS! OF PROCUCTION FOR ONE UNITInsts example Noth asa about nvatagein te poduciono bt lath an aoa appear i sttht aes unprtiale,or atest at sees er cchange nooner em. Yet ade st advnageos bah sere he eae css poston erm te tw count. corde in Noh on uno th cos (700 ous fra 50 oe an oitan be echnged fr oe bal ao ral Not he peo cei inc pee of a South one anit of dh cox CODD Bou of Sena In South ps of oth eas the price of gra Hn cree mar ths hl of er oe unit fw eit ae a ryaiSeuheen pot one ito totherlestan ont of Ten tia gin om rade ela price tos the Bounds for adept btwec prea pie of atop fai ot Ooand ” eee en ea ple, ata neato ao of wos, North un fom rae ioelnpoone una pn eensnexporingone anda iso SRE Bond ese Nor ony snr boro predie he nto ot Tee earner ta fo oneunt imported nis tas ous Undet eae cons test Noi ID) burst to produce one tat of ai Tre ih gis om ate iors On nt fst re exchange fr any sel pin, Porto ae, South pnt 20 routs prose WoEESator cen, Tough rate eee ast ar one ut oth ‘Bs Pa it tbe hour shespersan be domenteprodocton cnt Sp sors Une eae conan, North wi ed ops i he 2 ene th a South wl tnd wo speak i the production fan. See ign s eter pina Tee gus rm wae weno these pce ation of to ode der ander teravioal exchange stented sander condos of mo ade Such domestic coins re TRNSray ice wade suenr to stanky. Trade pow greater cae ir conunpton ote ase partons asthe specie sera exerting the oot ih they Rae a compare sana inSeaorinyhe tou in which hy ave a emprave Osaanae “Tater concn ofthe toy ofcomparatse advantage ate same s 1 Eee ny afasnlveavatage, Iran te theryafcompaane Reetee mons tat copies Joly tenet om tase Conde he ANI one mow) event one county bas an sb advantage in he abn of oo god Vota wots and consumption ete wet fretrate EE ne cry of abste avenge (femal by Adam Sei, rica noo af compare advnage dos at awe he eto of i omer unten theo cots, or he danbuton fans and see tirtcer ge proucrs an lth produc iin eac eu. No ‘etl ae oe ade hat, a0 cours oeral welt de ca wo poxwais-btin thcory test, alle gains caTaecre {Sone cum td to only one group win ta coun ‘The op offen adi appaion inte rtonasadcn now ‘explored in 4 more formal model of the gains from trade. “ (oa FROM TRADE atonr ar compe niin, Thoms of nes, commie, anc ‘baking, sn henon ure dogo we mds my pee se Sn the set na bch acomone dessin ates snes ‘ito, scores torte tae con ins to sagen prston ‘nd consumption Ps iste a inped moa ofthe el wore sbich neyo Stic al waa al pes tc osuconsie th aon somes presents goods an svi extn, pst manacred and crbtedby momo foc ‘he py tte conn. Th oer xg onan une “cman sconce conan sae sue omang oe Stoel tns ad eters all comune fe ‘all se cortemed on te Jonand de ulm aunt apr ealleonsmpton and prodacon resetby sneconpentve mart enh the ee of aS gles {8 shetuon ours nd ine tba a ou campuses ‘os ert mune At ile san tess opnal ate ‘Sse vc eternal meet ontone meet a ‘stra unr ot pooner Chand Sa he st of wing wie wi frat vale han? ino crn pre tan metro sppicton'o mains steps chemi thay of es ‘etn Tis topics duced n Captor an Inte ne sh ere 1 Ee cunton of San icra’ teemanet cpt pews To ‘Tet the reminder of hin chp ssc sermon 9a lets pecton and ites goss see tog se qevsve marten Sy stent mane Tir spt of he mgs Pe Svcton an commpin toa mans nam cena for purpose ot Expoon rae ne enced eos tinct mere coli tnd alist sump tut as tng eae ‘hte 6 be coco fet nd The me purpose thn ston ho demonstrate that once noni schutgtien upton way aap» Shennton oinresu nt tphtab Une ae each aon sea fac according to is comparative advantage, a suse ear A county is encore apne y he sre per eng oredr ives ad