IBT CH3: Theories of International Trade and Investment

Chapter 3 "Theories of International Trade and Investment" (incomplete pa)

It refers to the idea or explanation as to why things may happen.

Theory

It helps explain why or how things happen in trades/exchanges.

Trade Theories

One of the earliest or oldest theories that promotes the idea/concept of maximize exports and minimize imports.

Mercantilism

It refers to the act of buying or puchasing good from outside the country.

Import

It refers to the act of selling or sending good or services outside the country.

Export

It is related to Mercantilism but states, “if there is gains, ther must be losses also”

Zero-Sum Game

According to this theory, both countries may benefit through voluntary trade.

Modern Trade Theory

It is a theory associated by Adam Smith.

Absolute Advantage

This theory exist if a country can make certain produc/s more efficiently than other countries.

Absolute Advantage

This theory suggests that a country must have specialized product that they can make more efficiently.

Absolute Advantage

This concept/theory suggests that a country must export product that they can produce more efficiently and import products other countries can produce more efficiently.

Absolute Advantage

This asks the question, "who is more efficient?”

Absolute Advantage

This term refers to the things a country can produced better.

Specialization

This refers to the theory wherein a country must produce products with lower opportunity costs.

Comparative Advantage

It exists during decisions where you give up the next best alternative in exchange of another.

Opportunity Cost

bagay na pansamantalang ipinapalagay na true para madaling pag-aralan ang problem.

assumption

This refers to the reality that makes resources impossible or difficult to move from one industry to another.

Immobile Resources

As input increases, output decreases.

Diminishing Returns

three types of land

1. very fertile land

2. average land

3. poor land

It is the exchange/cost whenever there is changes in trade or production.

Adjustment Costs

It is the concept that explains how trade can create overall gains because its impact cannot be equally distributed.

Sameulson's Critique

Trade can create gains but may also create adjustment pressure for some workers.

Samuelson's Critique

He is the one who came up with Samuelson’s Critique.

Paul Samuelson

He introduces the theory of Comparative Advantage.

David Ricardo

He propagated the theory of Absolute Advantage.

Adam Smith

This refers to the trade with fewer government imposed barriers.

Free Trade

Another term for free trade.

Trade Liberalization

This refers to the taxes on imposed on imports or exported goods or service.

Tariff

This refers to the limit in quantity of goods or services that may be imported/exported.

Quota

What happens to tariff and quota when there is free trade?

Tariff's imposed is minimized or adjusted, while quota is maximized.

IT refers to the minimization of restrictions or barriers in trade.

Trade Liberalization

This theory was coined by Eli Heckscher and Bertil Ohlin which similar to the idea of mercantilism.

Heckscher-Ohlin Theory

It is also called Factor Proportions Theory which pertains to the idea of exporting when there is abundance in resources and importing when there is higher scarcity in whichever resources.

Heckscher-Ohlin Theory

a terms used when there is a lot of available resources

abundant

This refers to the perception of having limited resources.

Scarce/Scarcity

True or False:

Factor comes from the Latin root facere, which means "to do" or "to make." In economics, it refers to an agent or element that "makes" production happen (like land, labor, or capital).

True

True or False

Endowment comes from the Old French root douaire (and the Latin dotare), which means "to provide with a dowry" or "to give a gift." In economics, it refers to the resources a country is naturally "gifted" or blessed with.

True

It refers to the total amount of land, labor, capital, and entrepreneurship a country possesses and can exploit for manufacturing and trade.

In porter's diamond Model, it refers to the nature, size, and sophistication of home market customer demand that pressure local firms to innovate, raise quality standards, and gain competitive advantages.

Demand Condition

Also called factor conditions which refers to the inputs and resources a nation has that allow its firms to compete in a ny given industry.

Factor Endowments

In porter's diamond model, it refers to local upstream suppliers and complementary sectors that boost an industry's national competitive advantage through innovation, cost-efficiency, and knowledge sharing.

Related and Supporting Industries

It is how firsm are organized and how strongly they compete.

Firm Strategy, Structure and Rivalry

It is one of the four interconnected core components in Porter's Diamond Model that determines a nation's or region's competitive advantage in a specific industry.

Firm Stratefy, Structure and Rivalry

It explains how the local environment in which companies are created, organized, and managed shapes their capability to compete globally.

Firm Strategy, Structure and Rivalry

It is a term for when a foreign company/investor invests using a transfer or relocation of their business activity into another country usually for reasons of benefitting the lower labor costs.

Foreign Direct Investment (FDI)

Stephen Hymer and Charles Kindleberger proposed the concept of FDI as having advantages that may arise from superiority in technological innovation, manufacturing processes, brand names, knowledge, patents, scale economies, or marketing skills in comparison to local firms.

Monopolistic Advantage Theory

It is a modern theory wherein foreign firms that enters local markets may take advantage of the opportunity of monopolizing the local market by means of using global advances knowledge, skills, technologies, etc. to gain market share.

Monopolistic Advantage Theory

This theory has a disadvantage of having local competitions that knows the locational and local markets better. They may also enjoy the benefits of government protection, famiiliary with rules,

Monopolistic Advantage Theory