Theory and Practice of International Business By Prof. Vijay P. Singh

Theory and Practice NAFTA GATT WTO

Views of International Trade Free trade must be allowed Trade restrictions are necessary to protect domestic Industries It is important to protect Indian Industries and jobs by limiting imports It is important to allow free-trade so that public can buy goods at cheaper price

Classical Theories of Trade ADAM SMITH THEORY: If a country could produce a good cheaper than other countries it had an absolute advantage in the production of that good. In order to maximize national income, countries should produce and exports surplus of what they have absolute advantage in, and buy what ever else they need from the rest of the world.

Classical Theories of Trade David Ricardo : Both countries, should and indeed, will trade in order to increase their national welfare, as long as each has a comparative advantages in the production of one good verses another. In other words, incentive for trade would exist even when one country has absolute cost advantages in every thing or another country has the absolute cost advantage in nothing i.e. the country should have the ability to produce one good, relative to another good, that is different from another country’s relative ability to produce the same two goods.

Classical theories of Trade Heckscher-ohlin theory: Goods differ on how much they were of certain types of factors of production i.e. different goods have different factor intensities for instance the manufactures of textiles is labor intensive while manufactures of semi-conductor is capital intensive.

Classical theories of Trade Modern Theory of International Trade Increasing returns of scale Product differentiations

Classical theory of Trade International Product life cycle theory Amartyasen theory: Difference between people Rich and Poor

International Trade Theory