TRADE THEORIES ABSOLUTE ADVANTAGE COMPARATIVE ADVANTAGE GAINS FROM TRADE ASSUMPTIONS CRITIQUE OTHER REASONS WHY TRADE IS BENEFICIAL AND WHY TRADE OCCURS

HECKSCHER-OHLIN MODEL COMPARATIVE ADVANTAGE AND TRADE BASED ON RESOURCE ENDOWMENTS SOME COUNTRIES HAVE LOTS OF CAPITAL AND WILL CONCENTRATE ON PRODUCTION OF CAPITAL INTENSIVE GOODS

OTHERS HAVE LOTS OF LABOUR AND WILL CONCENTRATE ON LABOUR INTENSIVE GOODS TRADE BETWEEN INDUSTRIALISED WORLD AND DEVELOPING WORLD EUROPE EXPORTS GOODS WITH A HIGH CAPITAL TO LABOUR RATIO( INCLUDING HUMAN CAPITAL)…CHEMICALS, PHARM., MEDICAL EQUIPMENT, FINANCIAL SERVICES

EUROPE IMPORTS LABOUR INTENSIVE PRODUCTS TEXTILES, CLOTHES, BASIC MANUFACTURES AS WITH RICARDO H-O SHOWS THAT TRADE GENERATES GAINS BASIS FOR CA IS RESOURCE ENDOWMENTS… NOT LABOUR PRODUCTIVITY

TRADE BETWEEN COUNTRIES WITH DIFFERENT RESOURCE ENDOWMENTS…. UK AND INDIA TRADE OF DIFFERENT PRODUCTS….COMPUTERS FOR CLOTHES MUCH TRADE IS BETWEEN SAME TYPES OF COUNTRIES…..US AND EU AND SAME TYPES OF PRODUCTS….CARS FOR CARS

GROWTH IN TRADE IS ALSO MAINLY IN INTRA INDUSTRY TRADE EU TRADE WITH USA TRADE WITHIN THE EU GERMANY WITH FRANCE BROADLY SAME MIX OF RESOURCES SAME CAPITAL INTENSITIES

INTRA INDUSTRY DEFINITIONAL ISSUES CAUSES AND GAINS FROM INTRA INDUSTRY TRADE IMPERFECT COMPETITION, ECONOMIES OF SCALE AND PRODUCT DIFFERENTIATION IC CHARACTERISTICS

TWO COUNTRIES A AND B TWO PRODUCTS X AND Y DEMAND FOR EACH IN BOTH A AND B AUTARKY RESULTS IN SMALLER PRODUCTION RUNS FOR EACH OF X AND Y TRADE ALLOWS A TO SPECIALISE IN EITHER X OR Y, ACHIEVE LARGER PRODUCTION RUNS AND LOWER AC

B CAN DO THE SAME WITH THE OTHER PRODUCT SPECIALISATION THROUGH INTERNATIONAL TRADE ALLOWS EXPLOITATION OF ECONOMIES OF SCALE AND LOWER AC FOR EACH PRODUCT RELATED TO THIS IS THE HYPOTHESIS OF OVERLAPPING DEMAND COUNTRY A EXPORTS THE PRODUCTS FOR WHICH THERE IS A LARGE DOMESTIC MARKET THESE EXPORTS SATISFY A MINORITY DEMAND IN THE OTHER COUNTRY B THE OTHER COUNTRY SATISFIES A MINORITY DEMAND IN COUNTRY A

EXAMPLE VOLKSWAGEN DOMINANT IN GERMANY RENAULT DOMINANT IN FRANCE DOMINANT DOES NOT EQUATE TO 100% SOME FRENCH LIKE VOLKS WAGEN AND SOME GERMANS LIKE RENAULT….(MINORITY TASTES)

DIFFERENTIATED PRODUCTS PRODUCTS NOT HOMOGENOUS CAR TYPES SAME BUT DIFFERENT COMPUTERS WHITE GOODS ECONOMY OF SCALE GAINS AND CONSUMER CHOICE GAINS

OTHER REASONS FOR TRADE TECHNOLOGICAL GAP INNOVATION AND NEW PRODUCTS GIVE THE LEAD COUNTRY AN INITIAL MONOPOLY EXPORT PRODUCT EVENTUALLY OTHER COUNTRIES CATCH UP AND EXPORTS CEASE

PRODUCT CYCLE IS AN EXTENSION OF THIS NEW PRODUCTS DEVELOPED IN RICH ADVANCED COUNTRIES EXPORTED TO SERVE THE WORLD OTHER COUNTRIES DEVELOP THE EXPERTISE EXPORTS FROM ORIGINAL COUNTRY CEASE

EVENTUALLY LATE ARRIVALS WILL EXPORT TO THE INITIAL PRODUCER WHO MOVES ONTO NEW INNOVATIONS TRADE RELATED TO R/D ACTIVITIES TRADE FLOWS AND MULTI-NATIONAL CORPORATIONS….LOCATE PRODUCTION IN LOCATIONS WITH APPROPRIATE FACTOR ENDOWMENTS

AVAILABILITY OF PRODUCTS….OIL, RAW MATERIALS TRANSPORT COSTS TECHNOLOGY VARIETY OF REASONS FOR TRADE BUT ALL GENERATE GAINS OVER AUTARKY

TRADE Vs PROTECTION EXAMINE PROTECTION ALREADY REFERRED TO THE WIDE VARIETY OF INTERVENTIONS WITH FREE TRADE SUBSIDIES, TAXES, NTBs, RULES AND REGULATIONS ISSUE IS NOT AUTARKY vs FREE TRADE

A LITTLE MORE OR A LITTLE LESS “FREE” TRADE SPEED OF IMPLEMENTATION PROTECTION RESTRICTING THE FREE FLOW OF GOODS AND SERVICES