International Trade and Investment Theory

Classical Country-Based Trade Theories  Mercantilism  Absolute Advantage  Comparative Advantage

Types of International Investments  Does the investor seek an active management role in the firm merely a return from a passive investment? –Foreign Direct Investment –Portfolio Investment

Foreign Direct Investment OECD Factbook 2007 – Outward & Inward Stocks (as percentage of GDP)

Foreign Direct Investment OECD Factbook 2007 – FDI Inflows (in Millions of US dollars)

Foreign Direct Investment OECD Factbook 2007 – FDI Outflows (in Millions of US dollars)

CIA World Factbook - Stock of direct foreign investment at home (link)link RankCountry Stock of direct foreign investment - at home Date of Information 1 World 12,200,000,000,000.00as of year-end United States 1,818,000,000, est. 3 United Kingdom 1,135,000,000, est. 4 Hong Kong 769,100,000, est. 5 Germany 763,900,000, est. 6 China 699,500,000, est. 7 France 697,400,000, est. 8 Belgium 633,500,000, est. 9 Netherlands 450,900,000, est. 10 Spain 439,400,000, est. 11 Canada 398,400,000, est. 12 Italy 294,800,000, est. 13 Russia 271,600,000,

CIA World Factbook - Stock of direct foreign investment abroad (link)link RankCountry Stock of direct foreign investment - at home Date of Information 1 World 12,200,000,000,000.00as of year-end United States 1,818,000,000, est. 3 United Kingdom 1,135,000,000, est. 4 Hong Kong 769,100,000, est. 5 Germany 763,900,000, est. 6 China 699,500,000, est. 7 France 697,400,000, est. 8 Belgium 633,500,000, est. 9 Netherlands 450,900,000, est. 10 Spain 439,400,000, est. 11 Canada 398,400,000, est. 12 Italy 294,800,000, est. 13 Russia 271,600,000,

Formulation of National Trade Policies

Issues on Trade Intervention  Should a national government intervene to protect the country’s domestic firms by taxing foreign goods entering the domestic market or constructing other barriers against imports?  Should a national government directly help the country’s domestic firms increase their foreign sales through export subsidies, government-to-government negotiations, and guaranteed loan programs?

Barriers to International Trade  Tariff barriers –Export tariff –Transit tariff –Import tariffs Ad valorem Specific Compound  Non-tariff barriers –Quotas –Product and testing standards –Restricted access to distribution networks –Public-sector procurement policies –Regulatory controls –Currency controls –Investment controls –Local-purchase requirements

 Impact of an Import Tariff on Demand for U.S.– Made Minivans Impact of Import Tariffs

Tariff Rate Quota on Widgets A tariff rate quota imposes high tariff rates on imports above the threshold level

Types of Barriers to International Trade