1. International Trade Theories
International Business
Chapter 9
Chunni Yang
TFSU

2. 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

3. Mercantilism

4. 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.

5. Classical Trade Theory
The Theory of Absolute Advantage

6. 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.

7. Classical Trade Theory
The Theory of Absolute Advantage

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

9. The New Trade Theory
Economies of Scale and Imperfect Competition

10. The New Trade Theory
The Diamond Model

11. Thank you!