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Internation Trade Essay

1496 words - 6 pages

A-International Trade theory

1-Mercantilism
Thomas Mun (17th century) stated that foreign trade was only beneficial if a country “sells more to strangers yearly than we consume of theirs in value”
2-Absolute advantage (1776, Adam Smith)
The ability of a country to produce a product with fewer inputs than another country
3-Comparative advantage (1817, David Ricardo)
The notion that although a country may produce both products more cheaply than another country, it is relatively better at producing one product than the other
4-Product life cycle theory
A product life cycle refers to the time period between the launch of a product into the market till it is finally withdrawn from it. ...view middle of the document...

3- Related and supporting industries
To be competitive, a country needs to have a network of linked industries.
4- Firm strategy, structure and rivalry
The strategies adopted by business need to fit with the national culture and approach to business.

B-Economic integration
It is a term used to describe all of the various regional trade agreements. Different regional trade agreements determine different types of economic integration:
* Free Trade Area (FTA): removes tariffs among members, members retain own trade policies toward others
* Customs Union (CU): FTA and common trade policy toward others
* Common Market (CM): CU and elimination of intra-market factor of production movements
* Economic Union (EU): CM and full integration of member economies (common policy)
* Political Union: EU and political integration

1-Regional trade agreements and MNEs
MNEs developed as a result of regional trade agreements and integration development
MNEs try to benefit from integration through:
* Joint ventures and acquisitions to gain an economic position
* Localizing operations: focus on aspects of operations

2-The European Union
* 1952, 6 members of coal and steel community (France, West Germany, Italy, Belgium, Netherlands Luxembourg)
* 1958 Treaty of Rome: European Community (Common market -> Elimination of internal trade barriers -> Common external tariff -> free movement of factors of production.
* 1973, the Communities enlarged to include Britain, Ireland, Denmark
* 1986, Single European ACT was single
* European market 1993 (Maastricht Treaty 1992 -> movement towards greater political and social integration.)

Benefit of EU membership
* Economies of scales, large single domestic market surrounded by a tariff wall.
* Companies within that market benefit from having consistent regulation, easy flow of capital and resources.
* Common Agriculture Policy. Self-sufficient.
* Free markets in labor and capital
* High levels of competition supported by consistent regulation of monopolies and mergers.
* Greater International influence than any single European country could.
Cost of EU membership
* Costs of change. Investments to ensure compliance with EU legislation.
* Adverse regional effects. Relocation of firms.
* Increased monopoly power. If small number of competitors in an industry (increase prices)
* Trade diversion. Effect of trade barriers from the EU and trade with countries outside EU
3-Monetary policy (Origin of the European “single currency” (monetary union): The Euro)
* Develop a single currency that would avoid the uncertainties associated with currency fluctuation between member states
* Make it easier for companies to plan their production and marketing (better idea of costs and prices throughout the EU)

C-Foreign direct investment (FDI):
Equity funds invested in another country. It most commonly investment...

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