Discuss trade theories and competitive advantages.
Discuss trade theories and competitive advantages.
In the following discussion I would like to shed some light on international trade theories (Bhanot, 2016).
Mercantilism: This theory is based on the notion of selling more to outside countries than what is bought from them in value. In other words, a county should tend to have more exports than imports to maximize the national wealth. Discuss trade theories and competitive advantages. This theory was presented by Thomas Mun in 1630.
Absolute Advantage: The theory was presented by Adam Smith in 1776. This theory states that a country can have an absolute advantage when the products that are produced by it are more efficiently produced than another country that is also producing the same product.
Comparative Advantage: This theory was presented by David Ricardo in 1817. According to this theory, if a country is efficiently producing two products and have an absolute advantage in it, the country can produce one product more than the other in which it considers itself comparatively efficient and still be good at trade with other countries producing the product that is less produced by the first country.
Heckcher-Ohlin Theory: this theory was presented by Eli Heckcher in 1919. According to this theory, comparative advantage in international trade can be achieved by focusing on national factors like land and labor.
The product Life-Cycle Theory: According to this theory, presented by Raymond Vernon in 1960’s, the product life cycle is important to understand for mastering international trade. A product is first introduced by one country, and its production is started by another country. After some time, the country that introduced the products has to import it as the companies have moved from its boundaries to another country to produce the product.
New Trade Theory: according to this theory, international trade can increase the variety and number of a product for international consumers and decrease its price.
National Competitive Advantage: Michael Porter presented this theory in 1990. According to this theory, there are four factors that influence the national success in a specific industry. These factors are Factor Endowments, Demand Conditions, Relating and Supporting Industry and Firm strategy, structure and Rivalry.
