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Reasons For International Trade For International Business MCOM Sem 2 Delhi University Complete Notes

Reasons For International Trade For International Business MCOM Sem 2 Delhi University  Complete Notes

Reasons For International Trade For International Business MCOM Sem 2 Delhi University  : Here Cakart.in website team members provide direct download links for Reasons For International Trade For International Business MCOM Sem 2 Delhi University  Complete notes in pdf format. Download these Reasons For International Trade For International Business MCOM Sem 2 Delhi University  Complete Notes notes in pdf format and read well.

Reasons For International Trade For International Business MCOM Sem 2 Delhi University  Complete Notes

Reasons For International Trade For International Business MCOM Sem 2 Delhi University  :  International Trade takes place because of the variations in productive factors in different countries. The variations of productive factors cause differences in price in different countries and the price differences are the main cause of international trade.

Indians drive cars made in Japan, use VCR�s made in Korea. Americans drive cars made in Germany, use VCR�s made in Japan and wear clothing made in China. Japanese watch American movies, Egyptians drink American cola and Swedes jog in American running shoes. The world economy is more integrated than ever before. International Trade shapes our everyday lives and the world we live in. Nearly every time we make a purchase or sale, we are participating in the global economy. Products and their components come to our store shelves from all over the world.

Goods and services that a country buys from another country are called imports, and goods and services that are sold to other countries are called exports. Trade mostly takes place between companies. However, governments and individuals frequently buy and sell goods internationally.

Download here Reasons For International Trade For International Business MCOM Sem 2 Delhi University  Complete Notes in pdf format

Reasons For International Trade For International Business MCOM Sem 2 Delhi University  Complete Notes

Reasons For International Trade For International Business MCOM Sem 2 Delhi University  : From an economic perspective, the case for freer trade rests on the existence of gains from trade and most economists typically agree that there are gains from trade. In recent years, however, free trade has increasingly come under fire and it is not uncommon to hear trade sceptics say that economists’ arguments in favour of free trade and in particular comparative advantage may have been valid at the time of Ricardo (in the early 19th century) but that they are no longer valid in today’s globalized world. This section critically assesses the relevance of economic theories of international trade in today’s global trading environment. Most trade models are designed to answer two closely related questions: what goods do countries trade and why. While the main focus of this section is on the causes of trade, the discussion often touches upon the question of the patterns of trade.

This assessment of the relevance of trade theories is based on an overview of the theoretical models as well as of the empirical literature. This section begins by examining how robust the theories are and how far they can be generalized. This is an important part of the discussion – in particular, when the traditional approach is considered. This is because the traditional case for gains from trade is largely theoretical. In fact, it could even be argued, as Leamer and Levinsohn (1995) do, that “though obviously important and theoretically robust, the existence of gains from exchange is fundamentally a premise of economics, not a testable implication of a particular model”. Bearing this in mind, this section also reviews empirical work that tests trade theories and that attempts to estimate the relative importance of different types of gains from trade.

The idea that there are gains from trade is the central proposition of normative trade theory.1 The gainsfrom-trade theorem states that if a country can trade at any price ratio other than its domestic prices, it will be better off than in autarky – or self-sufficiency.2 More generally, the basic gains from trade propositions are that:3 i) free trade is better than autarky; ii) restricted trade (i.e. trade restricted by trade barriers) is better than autarky; and, iii) for a small country (i.e. a country too small to influence world prices) free trade is better than restricted trade.

Reasons For International Trade For International Business MCOM Sem 2 Delhi University  Complete Notes

Reasons For International Trade For International Business MCOM Sem 2 Delhi University  : The first theory section of this course develops models that provide different explanations or reasons why trade takes place between countries. The five basic reasons why trade may take place are summarized below. The purpose of each model is to establish a basis for trade and then to use that model to identify the expected effects of trade on prices, profits, incomes, and individual welfare.

Reason for Trade #1: Differences in Technology

Advantageous trade can occur between countries if the countries differ in their technological abilities to produce goods and services. Technology refers to the techniques used to turn resources (labor, capital, land) into outputs (goods and services). The basis for trade in the Ricardian model of comparative advantage in Chapter 2 “The Ricardian Theory of Comparative Advantage” is differences in technology.

Reason for Trade #2: Differences in Resource Endowments

Advantageous trade can occur between countries if the countries differ in their endowments of resources. Resource endowments refer to the skills and abilities of a country’s workforce, the natural resources available within its borders (minerals, farmland, etc.), and the sophistication of its capital stock (machinery, infrastructure, communications systems). The basis for trade in both the pure exchange model in Chapter 3 “The Pure Exchange Model of Trade” and the Heckscher-Ohlin model in Chapter 5 “The Heckscher-Ohlin (Factor Proportions) Model” is differences in resource endowments.

Reason for Trade #3: Differences in Demand

Advantageous trade can occur between countries if demands or preferences differ between countries. Individuals in different countries may have different preferences or demands for various products. For example, the Chinese are likely to demand more rice than Americans, even if consumers face the same price. Canadians may demand more beer, the Dutch more wooden shoes, and the Japanese more fish than Americans would, even if they all faced the same prices. There is no formal trade model with demand differences, although the monopolistic competition model in Chapter 6 “Economies of Scale and International Trade” does include a demand for variety that can be based on differences in tastes between consumers.

Reason for Trade #4: Existence of Economies of Scale in Production

The existence of economies of scale in production is sufficient to generate advantageous trade between two countries. Economies of scale refer to a production process in which production costs fall as the scale of production rises. This feature of production is also known as “increasing returns to scale.” Two models of trade incorporating economies of scale are presented in Chapter 6 “Economies of Scale and International Trade”.

Reason for Trade #5: Existence of Government Policies

Government tax and subsidy programs alter the prices charged for goods and services. These changes can be sufficient to generate advantages in production of certain products. In these circumstances, advantageous trade may arise solely due to differences in government policies across countries. Chapter 8 “Domestic Policies and International Trade”, Chapter 8, Section 3 “Production Subsidies as a Reason for Trade” and Chapter 8 “Domestic Policies and International Trade”, Chapter 8, Section 6 “Consumption Taxes as a Reason for Trade” provide several examples in which domestic tax or subsidy policies can induce international trade.

Summary

There are very few models of trade that include all five reasons for trade simultaneously. The reason is that such a model is too complicated to work with. Economists simplify the world by choosing a model that generally contains just one reason. This does not mean that economists believe that one reason, or one model, is sufficient to explain all outcomes. Instead, one must try to understand the world by looking at what a collection of different models tells us about the same phenomenon.

For example, the Ricardian model of trade, which incorporates differences in technologies between countries, concludes that everyone benefits from trade, whereas the Heckscher-Ohlin model, which incorporates endowment differences, concludes that there will be winners and losers from trade. Change the basis for trade and you may change the outcomes from trade.

In the real world, trade takes place because of a combination of all these different reasons. Each single model provides only a glimpse of some of the effects that might arise. Consequently, we should expect that a combination of the different outcomes that are presented in different models is the true characterization of the real world. Unfortunately, because of this, understanding the complexities of the real world is still more of an art than a science.

Reasons For International Trade For International Business MCOM Sem 2 Delhi University  Complete Notes

Reasons For International Trade For International Business MCOM Sem 2 Delhi University  :  I’m currently taking International Business as part of my MBA program at Rutgers, and decided to share my outline for what I’m studying at the moment – international trade theory.  These notes are a combination of my own interpretation of the materials presented in “International Business” by Charles W. L. Hill, and direct quotes from that text (which I did not explicitly demarcate).  Assume all thoughts and ideas presented here are Hill’s.

Characteristic of global trade 

Trading globally gives consumers and countries the opportunity to be exposed to new markets and products. Almost every kind of product can be found on the international market: food, clothes, spare parts, oil, jewellery, wine, stocks, currencies and water. Services are also traded: tourism, banking, consulting and transportation. A product that is sold to the global market is an export, and a product that is bought from the global market is an import. Imports and exports are accounted for in a country’s current account in the balance of payments.

Industrialization, advanced technology, including transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. Without international trade, nations would be limited to the goods and services produced within their own borders. International trade is, in principle, not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture.

Another difference between domestic and international trade is that factors of production such as capital and labor are typically more mobile within a country than across countries. Thus international trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in capital, labor or other factors of production. Trade in goods and services can serve as a substitute for trade in factors of production. Instead of importing a factor of production, a country can import goods that make intensive use of that factor of production and thus embody it. An example is the import of labor-intensive goods by the United States from China. Instead of importing Chinese labor, the United States imports goods that were produced with Chinese labor. One report in 2010 suggested that international trade was increased when a country hosted a network of immigrants, but the trade effect was weakened when the immigrants became assimilated into their new country.

Reasons For International Trade For International Business MCOM Sem 2 Delhi University  Complete Notes

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