Chapter 3



Mercantilism



Goals
Effects on today
Economic nationalism
Theory of Absolute Advantage


Adam Smith
Specialize



Heckscher- Ohlin Theory of Factor Endowment





Countries export
Countries import
Assumptions


Perfect market
Technology
Leontief Paradox



U.s. is capital-intensive
Why?
Outcome
Differences in Taste
Money can change flow of trade


Exchange rates
Currency devaluation



New Explanations for Direction of Trade


Economies of scale and experience curve

Why?
First-mover theory
Linder Theory of Overlapping Demand


Manufacturing goods
Income levels




What is it?

Exports  imports
Process




U.S. exports
Foreign production begins
Foreign competition in export markets
Import competition in U.S.
Technology Life Cycle



U.S develops
Other developed
Developing

Porter’s Competitive Advantage of
Nations


What is it?
Factors




Demand conditions
Factor conditions
Related and supporting industries
Firm strategy, structure, and rivalry





Differences in endowments of factors of production
Differences in level of technology
Differences in efficiencies with which factor intensities are utilized
Foreign exchange rates


Arguments for Restriction


National Defense
Sanctions to Punish Offending Nations





Protect Infant Industries
Protect Declining Industries
Protect Domestic Jobs
Scientific Tariff or “Fair Competition”
Retaliation


Dumping

Five types
Subsidies

Countervailing duties


Tariffs






Ad valorem
Specific duty
Compound duty
Official prices
Variable levy
Lower duty for more local input


Nontariff Barriers

Quantitative

Quotas

Absolute


Tariff-rate
Global


Voluntary export restraints
Orderly marketing arrangements

Multifiber Arrangement


Nontariff Barriers

Nonquantitative



Direct government participation in trade



Agriculture procurement policies
Government procurement policies
1920 Jones Act
Customs and other administrative procedures
Standards

Managers must be aware of barriers!!!!!!


Multinational  Global Manufacturing
Systems

Two options

Costs of Barriers

Consumer costs


Categories







Developed
Developing
New Industrialized Countries

Three characteristics
Newly Industrialized Economies
IMF Classifications
World Bank



GNP/capita
Problems with that


Underground market
Exchange rates
Purchasing power parity
Atlas conversion factors

Characteristics of Developing
Nations













GNP/ capita of less than $9,075
Unequal distribution of income, small middle class
Technological dualism
Regionalism dualism
80-85% of population in unproductive agricultural sector
Disguised unemployment or underemployment- two people doing what one can do
High population growth (2.5-4%)
High rate of illiteracy
Widespread malnutrition
Political instability
High dependence on few exports (agriculture and minerals)
Inhospitable topography
Low savings rates and inadequate banks




Goals
Human Development Index
Investment in Human Capital

Return

International Investment Theories




Monopolistic Advantage Theory
Product and Factor Market Imperfections
International Product Life Cycle
Other Theories




Follow-the-leader theory
Cross investment
Internationalism theory
Dunning’s Eclectic Theory of International Production



Ownership-specific
Internalization
Location-specific