International Trade Theories International Business Chapter 9 Chunni Yang TFSU

Learning Objectives The evolution of trade theories Absolute advantage and comparative advantage Division of labor and productivity Economies of scale and market imperfection Determinants of national competitive advantage

Mercantilism

Classical Trade Theory The Theory of Absolute Advantage Table 9-1: Absolute Advantage Country China US Wheat (labor-hours/unit) 10 5 Tea (labor-hours/unit) 4 20 Labor-hours available 100 Labor-hours allocation without trade 50/50 Production without trade (wheat/tea) 5/12.5 10/2.5 Optimal production (wheat/tea) 0/25 20/0 Source: Made by the author.

Classical Trade Theory The Theory of Absolute Advantage

Classical Trade Theory The Theory of Comparative Advantage Table 9-1: Absolute Advantage PRODUCT COUNTRY A COUNTRY B WHEAT (KILO/HR) 6 1 CLOTH (METER/HR) 3 2 Source: Made by the author.

Classical Trade Theory The Theory of Absolute Advantage

Factor Proportions Trade Theory The H-O Model The Leontief Paradox

The New Trade Theory Economies of Scale and Imperfect Competition

The New Trade Theory The Diamond Model

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