Thursday, 19 December 2019

Unit 3: Modern Theories of International Trade

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Unit 3: Modern Theories of International Trade


The Human Capital Theory concludes that patterns of international trade and location were predetermined for a broad group of manufacturers by the relative abundance of skilled and unskilled labour.

As per Identical Preference Theory, a domestic industry can flourish and reach commercially optimal level of production if the domestic demand is large enough.

Strategic trade theory describes the policy certain countries adopt in order to affect the outcome of strategic interactions between firms in an international oligopoly, an industry dominated by a small number of firms.

As with conventional trade models, models of imperfect competition in international trade predict an increase in domestic producer surplus (and a decrease in domestic consumer surplus) as a result of price or quantity restrictions.

Some economists believe that firms within an oligopoly enter foreign markets merely as a competitive response to the actions of an industry leader and to equalize relative advantages.

The international product life cycle theory puts forth a different explanation for the fundamental motivations for trade between and among nations.

The international product life cycle theory puts forth a different explanation for the fundamental motivations for trade between and among nations.

Production factors are considered now more mobile than previously assumed but their mobility is still considered restricted.

Imperfect Competition: Real world competition that is less effective in lowering price levels nearer to the cost levels than the theoretical perfect competition.

Increased Returns to Scale: Reduction in cost per unit resulting from increased production, realized through operational efficiencies.

International Product Lifecycle Theory: A model which suggest that products go through a cycle whereby high income, mass consumption countries go through a cycle of exporting, loss of exports to final importers of products.

Net Exports: The value of a country’s total exports minus the value of its total imports.

Oligopoly: A state of limited competition, in which a market is shared by a small number of producers or sellers.

Self-sufficiency: Able to provide for oneself without the help of others   



 It is a measure of a worker’s expertise, specialisation, wages, and supervisory capacity.

Notes Strategic Trade Theory: It describes the policy certain countries adopt in order to affect the outcome of strategic interactions between firms in an international oligopoly, an industry dominated by a small number of firms.

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