W2 International Business

What is mercantilism?

Companies should aim to maintain a positive trade balance

What are criticisms of mercantilism?

• Protection of inefficient local industries

• Consumers bear higher prices

• Resources are being misused

What is Adam Smith’s classiscal economic theory?

Markets should be allowed to operate freely without the intervention of the government

What is Adam Smith’s invicible hands theory?

Optimal allocation of resources will bring markets to an equilibrium in the long run

What is an absolute advantage?

A party can produce more of a good or service than competitors using the same amount, or fewer resources

What is a comparative advantage?

Parties should specialise in producing goods with a lower opportunity cost than others, maximising efficiency and gains from trade

What is John Stuart Mill’s theory of infant industries?

Government should only introduce interventions if industry is new and is at risk of foreign competitors who already have a competitive advantage

What is Heckscher-Ohlin’s Factor Endowments theory?

Countries should export good they intensively possess

• These can be sourced cheaply

• Countries can raise export competitiveness in that sector

Countries should import goods that are locally scarce

Factor mobility is not addressed

What is Raymond Vernon’s Product Life Cycle Theory?

Products go through 4 phases

• Introduction

• Growth

• Maturity

• Decline

What is John Dunning’s Electic Paradigm?

Leveraging internal capabilities and advantages

• Ownership advantages

• Localisation advantages

• Internalisation advantages

What are some FDI motives?

Market seeking

Efficiency seeking

Resource seeking

Strategic asset seeking