Summary: Lecture 1 Introduction And International Trade Theories

Read the summary and the most important questions on Lecture 1 introduction and international trade theories

• 1 Introduction

• 1.3 Absolute Vs Comparative advantage

• Theory of Absolute advantage

  
  Each country should specialize in the production and export of that good which it produces most effectively, that is, with the fewest labor hours
  EX: Medical Specialist is also the best medical secretary

• Theory of Comparative advantage

  Country should specialize in the production of those goods in which it is relatively more productive .. Even if it has absolute advantage in all goods it produces

• 1.4 Differences in comparative costs explained

• What are the differences in comparative costs?

  1. Differences in price of a production factor
  2. Differences in productivity of productin factor
     

• Define differences in productivity of a production factor

  1. Labor intensive or labor extensive production
  2. Capital intensive or capital extensive production
     

• Theories for comparative costs

  1. Factor- proportions/ The factor endowment theory (Heckscher-Ohlin, 1919)
  2. International product life cycle (Ray Vernon, 1966)
     

• What is the factor-proportions or the Factor endowment theory

  
  - ( Heckscher-Ohlin, 1919)
  
  A country that is relatively labor abundant ( capital abundant) should specialize in the production and export of that product which is relatively labor intensive ( capital intensive)

• 1.5 Trade barriers

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• What are the different types of trade barriers

  1. Tariffs
  2. Quota's
  3. Licenses
  4. Embargo
  5. Export subsidies
  6. Voluntary export/ import restraints
  7. Local content requirement
  8. Technical standards
  9. Capital controls
     

• What is the Local content requirement?

  
  Components of the imported goods of domestic origin

• What are Technical standards?

  
  Excessive specifications for imported goods

• Reasons for Trade barriers?

  • Protecting domestic (infant) industries from international competition
  • Protecting domestic strategic goods
  • Protecting domestic jobs
  • Limit foreign influence in domestic economy
  • Provide extra income for government
  • Protecting customers (safety, qualities issues)