International Trade Theories

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International Trade Theories Mercantilism Mercantilism was a sixteenth-century economic philosophy that maintained that a country's wealth was measured by its holdings of gold and silver (Mahoney, Trigg, Griffin, & Pustay, 1998). This recquired the countries to maximise the difference between its exports and imports by promoting exports and discouraging imports. The logic was transparent to sixteenth-century policy makers-if foreigners buy more goods from you than you buy from them, then the foreigners have to pay you the difference in gold and silver, enabling you to amass more treasure. With the treasure acquired the realm could build greater armies and navies and hence expand the nation’s global influence. Politically, mercantilism was popular with many manufactures and their workers. Export-oriented manufacturers favoured mercantilist trade policies, such as those giving subsidies or tax rebates, which stimulated their sales to foreigners. Domestic manufacturers threatened by foreign imports endorsed mercantilist trade policies, such as those imposing tariffs or quotas, which protected them from foreign competition (Mahoney, Trigg, Griffin, & Pustay, 1998). Most members of society are hurt by such policies. Government subsidies of exports for selected industries are paid for by taxpayers. Mercantilist terminology is still used today, an example when television commentators and newspaper headlines report that a country suffered an ‘unfavourable’ balance of trade-that is, its exports were less than its imports. Mercantilist policies are still politically attractive to some firms and their workers, as mercantilism benefits certain members of society. Modern supporters of these policies are known as neo-mercantilists, or protectionists (Mahoney, Trigg, Griffin, & Pustay, 1998). The mercantilists were a group of economists who preceded Adam Smith. They judged the success of trade by the size of the trade balance (Lipsey, & Chrystal, 1996). Absolute Advantage The theory of absolute advantage, suggests that a country should export those goods and services for which it is more productive than other countries, and import those goods and services for which other countries are more productive than it is (Mahoney, Trigg, Griffin, & Pustay, 1998). Adam Smith was the first to come up with the theo... ... middle of paper ... ...1656; Richer-Buttery, 1998, Strategic Management, Infocus  Tony Lendrum, 1995, The Strategic Partnering Handbook, McGraw-Hill  Ball Mcculloch, 1999, International Business: The Challenge of Global Competition, Irwin/McGraw-Hill  Tripodnet,  Michael Porter, 1990, The Competitive Advantage of Nations. New York: The Free Press  Michael Porter, 1980 Competitive Strategy: Techniques for Analysing Industries and Competitors New York: Free Press  D Mahoney, M Trigg, R Griffin, M Pustay, 1998, International Business: A Managerial Perspective, Addison Wesley Longman, Melbourne.  G.R Lipsey, & A.K Chrystal, 1996, An Introduction to positive economics, 8th edition Oxford university press  Adam Smith, 1776, An Inquiry into the Nature and Causes of the Wealth of Nations  Gandolfo, 1998, International Trade Theory and Policy, Springer-Burlag, Berlin, Heidelberg  N. Gregory Mankiw, 1997, Principals of Economics, The Dryden Press  Dominic Salvatore, 1995, Theory and Problems of International Economics, McGraw-Hill
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