Global Marketing Chapter 2 Session 4 MOGHIMI University of Georgia

2. B.Moghimi@yahoo.co.uk B.Moghimi@yahoo.co.uk

3. Chapter 2
Trade Theories and
Economic Development
Bahman Moghimi (MA, DBA)Bahman Moghimi (MA, DBA)
B.Moghimi@yahoo.co.uk

4. Chapter Outline
 Basis for International Trade
- Production Possibility Curve
- Principle of Absolute Advantage
- Principle of Comparative/Relative Advantage
 Exchange Ratios, Trade, and Gain
 Factor Endowment Theory
B.Moghimi@yahoo.co.uk

5. Chapter Outline
 The Competitive Advantage of Nations
 A Critical Evaluation of Trade Theories
- The Validity of Trade Theories
- Limitations and Suggested Refinements
 Economic Cooperation
- Levels of Economic Integration
 Economic and Marketing Implications
B.Moghimi@yahoo.co.uk

6. Basis for International Trade
 Principle of Absolute Advantage
- a country should export a commodity that
can be produced at a lower cost than can
other nations
- or import a commodity that can only be
produced at a higher cost than can other
nations
B.Moghimi@yahoo.co.uk

7. Basis for International Trade
 Principle of Comparative/Relative
Advantage
- a country should export either a product with
the greatest comparative advantage (or with
the least comparative disadvantage)
- or import either a product for which it has the
greatest comparative disadvantage (or the
least comparative advantage)
B.Moghimi@yahoo.co.uk

8. Factor Endowment Theory
 Factors of Production
- labor
- land
- capital
- others (technology, education, etc.)
 inequality of relative prices is a function of regional
factor endowments
 comparative advantage is determined by relative
abundance of such endowments B.Moghimi@yahoo.co.uk

9. Michael Porter
The Competitive Advantage of Nations
 Determinants of International
Competitiveness
- factor conditions
- demand conditions
- related and supporting industries
- firm strategy, structure, and rivalry
- chance
- government
B.Moghimi@yahoo.co.uk

10. B.Moghimi@yahoo.co.uk
Michael Porter
The Competitive Advantage of Nations

11. Validity of Trade Theories
 Leontief Paradox
– Tendency for countries with similar endowments
to trade among themselves
 Offshoring
 Factor Mobility and Substitution
 Demand
 Marketing
 Trade Barriers
B.Moghimi@yahoo.co.uk

12. Levels of Economic Cooperation
 Free Trade Area
 Customs Union
 Common Market
 Economic and Political Union
 Political Union
B.Moghimi@yahoo.co.uk

13. Economic Cooperation
 Free Trade Area
- elimination of internal duties
 Customs Union
- free trade area + establishment of common
barriers
 Common Market
- customs union + removal of restrictions on
movement of production factors
B.Moghimi@yahoo.co.uk

14. Economic Cooperation
 Economic and Monetary Union
- common market
- + harmonization of national economic
policies
- + one money
 Political Union
- harmonization of national political policies
B.Moghimi@yahoo.co.uk

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