Chapter 6 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 6 - 1 International Trade and Investment
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Chapter 6
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 6 - 1
International Trade and Investment
• Learn the motives for international trade
• Summarize and discuss the differences
among classical country-based theories
of international trade
• Use the modern firm-based theories of
international trade to describe global
business strategies
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Learning Objectives
Learning Objectives
• Describe and categorize the different
forms of international investment
• Explain the reasons for foreign direct
investment
• Summarize how supply, demand, and
political factors influence foreign direct
investment
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International Trade and the World Economy
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Both Parties Benefit
Why Does International Trade Occur?
USA8.5% Canada
2.5%
Others38.0%
China9.6%
Japan4.7%
EU36.7%
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Sources of the World’s Merchandise Exports 2009
Summary of Discussion
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Classical Country-Based Trade Theories
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Mercantilism
• Gold and Silver
• Increased Exports
• Reduced Imports
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Effects of Mercantilism
Opportunities Challenges
Stimulates Sales
Manages
Competition
Higher Taxes
Higher Prices
Modern Mercantilism
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Protectionists
Neomercantilists
Absolute Advantage
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Country’s Level of
Productivity
Import
Goods and
Services
Export
Goods and
Services
More Productive Than
Other Countries
Less Productive Than
Other Countries
Comparative Advantage
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Country’s Level of
Productivity
Import
Goods and
Services
Export
Goods and
Services
Relatively More Productive
Than Other Countries
Relatively Less Productive
Than Other Countries
Comparative Advantage with Money
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Specialization
Producing and Exporting
Buying Goods and Services
Comparative Advantage with Money: An Example
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Products
Cost of Goods in
France
Cost of Goods in
Japan
French
Made
Japanese
Made
French
Made
Japanese
Made
Bottle of Wine €3 €8 ¥375 ¥1,000
Clock Radio €2 €1.6 ¥250 ¥200
Heckscher-Ohlin Theory
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Theory of Relative Factor
Endowments
Comparative
Advantage
Abundant Factors of Production
Scarce Factors of Production
Yes
No
Leontief Tests the Heckscher-Ohlin Theory
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Abundant Capital
+
Labor Scarcity
Exporting Capital-
Intensive Goods=
Assumptions About U.S. Economy
The Leontief Paradox
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Summary of Discussion
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Modern Firm-Based Trade Theories
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Product Life Cycle Theory
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1. New Product Stage
2. Maturing Product Stage
3. Standardized Product Stage
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Types of Trade
Intraindustry
Interindustry
Country Similarity Theory
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Intraindustry Trade in Goods
Similar Consumer
Preferences
Similar Per Capita
Incomes
Economies of Scale
• Owning Intellectual Property Rights
• Investing in Research and Development
• Achieving Economies of Scope
• Exploiting the Experience Curve
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New Trade Theory
Porter’s Theory of National Competitive Advantage
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•Factor Conditions
•Demand Conditions
•Related and Supporting Industries
•Firm Strategy, Structure, and Rivalry
Summary of Discussion
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An Overview of International Investment
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International Investing
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Foreign Portfolio
Investments(FPI)
Foreign Direct
Investments (FDI)
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Stock of FDI for the United States, end of
2010 (billions of dollars)
Categories Total
FDI in the United States $2342.8
FDI from the United States $3908.2
Foreign Direct Investment and the United States
$0 $800 $1,600 $2,400 $3,200 $4,000 $4,800
1998
2002
2006
2010
Foreign FDI US FDI
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Outward and Inward U.S. FDI (in billions of USD)
Summary of Discussion
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International Investment Theories
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Ownership Advantages
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Superior
Technology
Well-Known
Brand Name
Economies
Of Scale
Penetrate Foreign Markets
Internalization Theory
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Internalize
InternationalizeLow
High High
Low
Tra
nsac
tion
Cos
tsT
ransaction Costs
Dunning’s Eclectic Theory
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Ownership Advantage
Conditions for FDI
Internalization Advantage
Location Advantage
Summary of Discussion
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Factors Influencing Foreign Direct Investment
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Production
CostsLogistics
Natural
Resources
Key
Technology
Supply Factors
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Customer
Access
Marketing
Advantages
Competitive
Advantages
Customer
Mobility
Demand Factors
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Political Factors
Trade Barriers
Economic Incentives
Summary of Discussion
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Chapter 6
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International Trade and Investment
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