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Introduction

International Trade Growth


International Trade Milestones
International Trade Drivers
International Trade Theories
The International Business Environment
International Trade Growth
International Trade Growth
International Trade Growth
International Trade
Milestones

The Bretton-Woods Conference (July


1944): created the International
Monetary Fund in 1945.
International Trade
Milestones

The Bretton-Woods Conference (July


1944): created the International
Monetary Fund in 1945.
– Provided for an international payment
system.
– Provided for stable currency exchange
rates.
International Trade
Milestones

General Agreement on Tariffs and


Trade (GATT), 1949–94
Tariffs
Tariffs

Country Country
A B
Tariffs

$50

Country Country
A B
Tariffs

$50

Country Country
A B
Tariffs

$75

$50

Country Country
A B
Tariffs

$75

$50

Country Country
A B
Tariffs

$75

$50

Country Country
A B
Tariffs

$75

$50

Country Country
A B
Tariffs

$75

$50

Country Country
A B
Tariffs

$75

$50 + 30

Country Country
A B
Tariffs

$75

$80

Country Country
A B
Tariffs

$75

$80

Country Country
A B
Tariffs

$75
Protectionism

$80

Country Country
A B

.
Tariffs

$75

Country Country
A B
Tariffs

Country C

Country Country
A B
Tariffs

Country C

Country Country
A B
International Trade
Milestones

General Agreement on Tariffs and


Trade (GATT), 1949–94, resulted in
gradual reduction of average tariff
from over 40% in 1947 to about
4% in 2002.
Tariffs

Country C

Country Country
A B
Tariffs

Country C

Country Country
A B
International Trade
Milestones

General Agreement on Tariffs and


Trade (GATT), 1949–94, resulted in
gradual reduction of average tariff
from over 40% in 1947 to about
4% in 2002.
International Trade
Milestones

• The World Trade Organization


January 1995)
• The Treaty of Rome (March 1957)
(Belgium, France, Luxemburg, Germany, Italy
and the Netherlands)

• Formation of many trade blocs


International Trade
Milestones
The Creation of the euro
• Common currency of twelve of the
twenty-five countries of the European
Union.
• Developed in the early 1990s.
• Placed in circulation on January 1, 2002.
• Replaced eleven strong legacy currencies.
• One of the strongest currencies of the
world.
International Trade Drivers
International Trade Theories

David Ricardo – Raymond Vernon –


•When a nation Comparative •A country will International •It is critical to
Advantage Theory enjoy a Product Life Cycle
can produce a have similar
certain good comparative Theory firms
•Nations will advantage if it concentrated in
more efficiently
than other trade as long as is naturally •During its life one geographic
they can endowed with cycle, a product area
countries, it
will trade for produce some many factors of will be
other products goods relatively economic manufactured
more efficiently production in different
countries
Adam Smith –
Absolute Advantage
Michael Porter –
Heckscher-Ohlin Cluster Theory
Theory Factor Endowment
Theory
Smith – Absolute Advantage

The absolute advantage theory states that when a nation can


produce a certain type of good more efficiently than other
countries, it will trade with countries that produce other goods
more efficiently.

Liters of Wine Units of Machinery

France 20,000 2

Germany 15,000 3

In this case, we assume both countries are using the same amount of
labor in the same time frame. France has an absolute advantage in
producing wine and Germany has an absolute advantage in
producing machinery.

As a result, France will specialize in making wine and Germany in


making machinery. They will then trade with each other.
Ricardo – Comparative
Advantage
The comparative advantage theory states that nations will trade
with one another as long as they can produce certain goods
relatively more efficiently than one another.

Tons of Wheat Units of Machinery

UK 25 5

Brazil 21 3

The UK has an absolute advantage in both machinery and wheat.


However, in the UK, the relative price of 1 unit of machinery is 5 tons of
wheat, and in Brazil, it is 7 tons of wheat.

The nations will trade: If the UK sells 1 unit of machinery to Brazil for 6
units of wheat, both the UK and Brazil are better off. The UK has a
comparative advantage in producing machinery, Brazil in growing wheat.
Heckscher-Ohlin Factor
Endowment
The factor endowment theory holds that a country will enjoy a
comparative advantage over other countries if it is naturally
endowed with a greater abundance of one of the factors of
economic production.

Factors of Economic Country Abundance Advantage


Production
Argentina Grazing Land Beef
1. Land
India Educated Labor Call centers
2. Labor Economic system where Innovation &
USA entrepreneurship is development of
3. Capital rewarded intellectual
property
4. Entrepreneurship
International Product Life Cycle
The International Product Life Cycle theory explains that, over
its life, a product will be manufactured in different types of
countries, in stages, generating trade between these countries.

• Product is created in developed country, using new


Stage 1 technology and serving a market need.

• As sales grow, competitors start to make similar products


Stage 2 in other developed countries, responding to local needs.

• Manufacturing of product has become routine and costs


need to be reduced, and production moves to developing
Stage 3 countries.
International Product Life Cycle
Porter – Cluster Theory

The cluster theory argues that competitive clusters form when


companies in the same industry, as well as their suppliers,
concentrate in one geographic area. When this happens, the
companies “feed” on each other’s know-how, pushing them to
innovate faster.

They become so efficient and innovative that they become world-


class suppliers.
Cluster Theory

Cluster Examples:

Silicon Valley, California, U.S. – Information technology

Sassuolo, Italy – Ceramic tiles


Limoges, France – Porcelain
Genève, Switzerland – Watches

Yiwu, China – Socks & hosiery

Elkhart, Indiana, U.S. – Recreational Vehicles


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