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Chapter 6

The document summarizes six theories of international trade: 1) Mercantilism focuses on maximizing exports and minimizing imports. 2) Absolute advantage and comparative advantage theories say countries should specialize in exporting products they have an advantage in. 3) Product life cycle theory says comparative advantages change over time and trade patterns as well through different stages. 4) Strategic trade theory involves government intervention to succeed in certain industries. 5) Diamond theory explains how comparative advantages form between nations. 6) Modern theories involve government intervention while classic theories do not. Factors like a location's product life cycle and maintaining comparative advantages are important for managers assessing locations. US exports are competitive due to valuable exports, difficulty to

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32 views

Chapter 6

The document summarizes six theories of international trade: 1) Mercantilism focuses on maximizing exports and minimizing imports. 2) Absolute advantage and comparative advantage theories say countries should specialize in exporting products they have an advantage in. 3) Product life cycle theory says comparative advantages change over time and trade patterns as well through different stages. 4) Strategic trade theory involves government intervention to succeed in certain industries. 5) Diamond theory explains how comparative advantages form between nations. 6) Modern theories involve government intervention while classic theories do not. Factors like a location's product life cycle and maintaining comparative advantages are important for managers assessing locations. US exports are competitive due to valuable exports, difficulty to

Uploaded by

Danaos
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Chapter 6:

Review question 6: Compare and contrast the six theories of international trade.

Mercantilism: maximize export, minimize imports.


Absolute advantage: Market determines the optimal amount of trade. Countries should
export products on which they have a absolute advantage.
Comparative advantage: Countries should specialize in exporting products on which they
have a comparative advantage.
Product life cycle: Comparative advantage changes over time, and also patterns of trade.
Stage 1: novelty. Stage 2: maturity. Stage 3: standardization.
Strategic trade: government intervention increases odds of international success in
industries characterized by: First-mover advantage, capital intensive and high barriers.
Diamond theory: explanation of comparative advantage. A theory that suggests that the
competitive advantage of certain industries in different nations depends on four
aspects that form a “diamond.”

Absolute advantage is a bit the same as comparative advantage, both theories specialize in
one product to maximize exports.

Comparative advantage is similar to the diamond theory. Both theories specialize in


maximizing development and exportation of one product.

All classic theories are in contrast with all modern theories. In all classic theories the
government is not involved, while the government is involved with all modern theories.

Review question 11: What are some of the factors that managers need to consider when
assessing the comparative advantage of various locations around the world?

Comparative advantage is changing continuously.

Keep product life circle in mind.

Monitor and maintain the current comparative advantage of a specific location and take
advantage of new locations.

CASE DISCUSSION QUESTIONS 2: From a resource-based view, explain why US exports are
so competitive?

Valuable: Record export of 1,58 trillion dollars.


Rarity: A lot of worldwide rivals, so developing manufacturing process is necessary.
Imitable: Very difficult to imitate
Organization: Need to organize very well to stay ahead of competition.
CASE DISCUSSION QUESTIONS 3: From an institution-based view, explain why US
exports are so competitive?

The US government has a lot of agreements with foreign governments to secure exportation
of goods.

Review question 5: How are foreign exchange rates affected by differences in the interest
rates?

When interest rate is increasing more foreign investors will purchase funds. This leads in an
increase demand for money. So, a higher exchange rate.

When there is a lot of money being printed there is less demand for money. This leads to a
decrease demand for money. So, a lower exchange rate.

Review question 11: Why a strong dollar is not always desirable to the United States, while
it may be to other countries?

A strong dollar price results that in foreign countries products are a lot cheaper and they
would be more likely to order it there. It is also more expensive for tourists in the US.

Review question 13: What is one example that illustrates why risk analysis of a country
should include its currency risks?

The Greek sovereign debt crisis is a financial crisis in Greece that broke out in May 2010. The
government of Giorgos Papandreou then suffered major financial setbacks. The Greek
government turned out to have falsified the financial figures for years. Partly as a result of
the international credit crisis and persistent uncontrolled spending, Greece entered a major
financial crisis that also affected the rest of the eurozone.

Critical question 1: Suppose US$1 5 €0.7809 in New York and US$1 5 €0.7793 in Paris, how
can foreign exchange traders profit from these exchange rates? What actions they
take may result in the same dollar/euro exchange rate in both New York and
Paris?

If you buy one dollar in Paris you get more then when buying it in New York. So it is quite risk
free.

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