Académique Documents
Professionnel Documents
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Mercantilism
From the mid-16th Century till 19th Century
A nations wealth depends on its accumulated
treasure, basically Gold & Silver
Gold and silver are the currency of trade.
Export more to strangers than we import to
amass treasure, expand kingdom
Trade is win or lose; a zero-sum game.
The interest of the State is dominant
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Mercantilism
Government intervenes to achieve a surplus in
exports
Theory says you should have a trade surplus.
Maximize exports through subsidies.
Minimize imports through tariffs and quotas.
King, exporters, domestic producers: happy
Subjects: unhappy because domestic goods stay
expensive and of limited variety
Fit quite well with an age of exploration, colonialism,
imperialism, and capitalism. (East India Companies)
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Comparative Advantage
David Ricardo: Principles of Political Economy, 1817
Extends free trade argument
Efficiency of resource utilization leads to more productivity.
Should import even if country is more efficient in the products
production than country from which it is buying.
Look to see how much more efficient. If only comparatively
efficient, than import.
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
Makes better use of resources
Absolute Advantage is a special case of Comparative
Advantage
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Leontief paradox
Could Factor Proportions Theory be used to explain the types
of goods the United States imported and exported?
US has relatively more abundant capital yet imports goods
more capital intensive than those it exports
The labor cost is high, but exports more labor intensive
goods
Explanation(?):
US has special advantage on producing new products
made with innovative technologies
These may be less capital intensive, but more labor
intensive till they reach mass-production state
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First-Mover Advantage
Economies of scale may preclude new
entrants.
Role of the government.
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Porters Diamond
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The Diamond
Success occurs where these attributes exist.
More/greater the attribute, the higher chance
of success.
The diamond is mutually reinforcing.
Factor Endowments
Factors of production: the inputs necessary to
compete in any industry
Basic factors-natural, capital and labor resources
(Heckscher-Olin)- are largely inherited
Advanced factors -supportive infrastructure,
technology & communication systems and an
educated workforce
Advanced factors lead to competitive advantage- created as a
result of investment by people, companies, government.
Generalized factorscan be used in a number of different industries
Specialized factorstailored for use in specific industries
Selective disadvantages may lead to advantages
in factors of production under certain conditions
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Demand conditions
Characterized by the nature and size of buyers
needs in the home market for the industrys
goods or services
Size of the market segment can lead to scale-
efficient facilities
Efficiency can lead to domination of the industry
in other countries
Demanding consumers may lead to efficient
product-
Value system
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International Business
International business consists of all
commercial transactionsincluding sales,
investments, and transportationthat take
place between two or more countries-to
satisfy the profit motives of individuals,
companies, and organizations
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