INTB - Ch. 5
theory of national competitive advantage of industries ("diamond"
1) Country factor endowments 2) Domestic demand conditions 3) Firm strategy, structure, & rivalry 4) Related and supporting industries
Political Arguments Against Free Trade
1) National security 2) Consumer protection 3) Foreign policy 4) Environmental & social responsibility
product life cycle theory
a theory that accounts for changes in the patterns of trade over time by focusing on product life cycles
theory of comparative advantage
a theory that focuses on the relative (not absolute) advantage in one economic activity that one nation enjoys in comparison with other nations
factor endowment theory (Heckscher-Ohlin theory
a theory that suggests that nations will develop comparative advantages based on their locally abundant factors
strategic trade theory
a theory that suggests that strategic intervention by governments in certain industries can enhance their odds for international success
theory of national competitive advantage of industries ("diamond" theory)
a theory that suggests that the competitive advantage of certain industries in different nations depends on four aspects that form a "diamond"
theory of mercantilism
a theory that suggests that the wealth of the world is fixed and that a nation that exports more and imports less will be richer
theory of absolute advantage
a theory that suggests that under free trade, a nation gains by specializing in economic activities in which it has an absolute advantage
trade surplus
an economic condition in which a nation exports more than it imports
trade deficit
an economic condition in which a nation imports more than it exports
infant industry argument
argument that if domestic firms are as young as "infants," in the absence of government intervention, they stand no chance of surviving and will be crushed by mature foreign rivals
first-mover advantage
benefit that accrues to firms that enter the market first and that late entrants do not enjoy
administrative policy
bureaucratic rules that make it harder to import foreign goods
opportunity cost
cost of pursuing one activity at the expense of another activity, given the alternatives (other opportunities)
subsidy
government payments to domestic firms
strategic trade policy
government policy that provides companies a strategic advantage in international trade through subsidies and other supports
voluntary export restraint (VER)
international agreement that shows that exporting countries voluntarily agree to restrict their exports
deadweight cost
net losses that occur in an economy as a result of tariffs
trade embargo
politically motivated trade sanction against foreign countries to signal displeasure
comparative advantage
relative (not absolute) advantage in one economic activity that one nation enjoys in comparison with other nations
local content requirement
requirement stipulating that a certain proportion of the value of the goods made in one country must originate from that country
import quota
restrictions on the quantity of imports
antidumping duty
tariff levied on imports that have been "dumped" (selling below costs to "unfairly" drive domestic firms out of business)
balance of trade
the aggregation of importing and exporting that leads to the country-level trade surplus or deficit
absolute advantage
the economic advantage one nation enjoys that is absolutely superior to other nations
factor endowment
the extent to which different countries possess various factors of production such as labor, land, and technology
free trade
the idea that free market forces should determine how much to trade with little or no government intervention
protectionism
the idea that governments should actively protect domestic industries from imports and vigorously promote exports
nontariff barrier (NTB)
trade barriers that rely on nontariff means to discourage imports
classical trade theories
which consist of (1) mercantilism, (2) absolute advantage, and (3) comparative advantage
modern trade theories
which consist of (1) product life cycle, (2) strategic trade, and (3) national competitive advantage of industries