Bài giảng International Business - Chapter three: Theories of International Trade and Investment

Theories of International Trade and InvestmentMcGraw-Hill/IrwinInternational Business, 11/eCopyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.chapter threeLearning ObjectivesExplain the theories that attempt to explain why certain goods are traded internationallyDiscuss the arguments for imposing trade restrictionsExplain two basic kinds of import restrictions: tariff and nontariff trade barriers3Learning ObjectivesAppreciate the relevance of changing status of tariff and nontariff barriers to managersExplain some of the theories of foreign direct investment4International Trade TheoryMercantilismEconomic philosophy based on belief that (1) a nation’s wealth depends on accumulated treasure, usually gold, and (2) to increase wealth, government policies should promote exports and discourage imports5Theory of Absolute AdvantageAbsolute advantageTheory that a nation has absolute advantage when it can produce a larger amount of a good or service for the same amount of inputs as can another country or When it can produce the same amount of a good or service using fewer inputs than could another country6Absolute AdvantageEach Country Specializes Example7Absolute AdvantageTerms of Trade (Ratio of International Prices)Gains from Specialization and Trade8Theory of Comparative AdvantageComparative AdvantageA nation having absolute disadvantages in the production of two goods with respect to another nation has a comparative or relative advantage in the production of the good in which its absolute disadvantage is less9Theory of Comparative AdvantageExampleEach Country Specializes10Comparative AdvantageTerms of Trade – at a rate of ¾ bolt of cloth for 1 ton of soybeansTerms of Trade – at a rate of 1 bolt of cloth for 1 ton of soybeansGains from Specialization and Trade11Comparative AdvantageProduction Possibility Frontiers (figure 3.1)Figure 3.112Heckscher-Ohlin Theory of Factor EndowmentFactor Endowment Heckscher-Ohlin theory that countries export products requiring large amounts of their abundant production factors and import products requiring large amounts of their scarce production factors13Heckscher-Ohlin Theory of Factor EndowmentLeontief Paradox The United States, one of the most capital-intensive countries in the world, was exporting relatively labor-intensive products in exchange for relatively capital-intensive productsDifferences in Taste A demand-side construct that is always difficult to deal with in economic theory14How Can Money Change The Direction of Trade?ExampleExchange Rate – the price of one currency stated in terms of another currency15How Can Money Change The Direction of Trade?Influences of Exchange RateCurrency devaluationThe lowering of a currency’s price in terms of other currencies16Some Newer Explanations For The Direction Of TradeLinder Theory of Overlapping Demand Customers’ tastes are strongly affected by income levels; therefore a nation’s income per capita level determines the kinds of goods they will demand17Some Newer Explanations For The Direction Of TradeInternational Product Life Cycle (IPLC) Explains why a product that begins as export eventually becomes import (figure 3.2) U.S. exportsForeign production beginsForeign competition in export marketImport competition in the United States18Figure 3.2 International Product Life Cycle19Some Newer Explanations For The Direction Of TradeTechnology Life Cycle Production technology application of IPLCEconomies of Scale and Experience CurveAs a plant gets larger and output increase, the average cost of producing each unit of output decreasesAs firms produce more products, they learn ways to improve production efficiency20Some Newer Explanations For The Direction Of TradeImperfect Competition Economies of scale with the existence of differentiated products--Paul KrugmanFirst-Mover TheoryPattern of trade in goods subject to scale economies may be determined by historical factors21Some Newer Explanations For The Direction Of TradeNational Competitive Advantage from Regional Clusters: Porter’s Diamond Model (figure 3.3)National Competitiveness: a nation’s relative ability to design, produce, distribute, or service products while earning increasing returns on resourcesDemand conditionsFactor ConditionsRelated and supporting industriesFirm strategy, structure, and rivalry22Figure 3.3 Variable Impacting Competitive Advantage: Porter’s DiamondSource: Reprinted by permission of the Harvard Business Review. “The Competitive Advantage of Nations” by Michael E. Porter,March–April 1990, p. 77. Copyright © 1990 by The President and Fellows of Harvard College; all rights reserved.23Trade Restrictions: Arguments ForNational DefenseSanctions to Punish Offending NationsProtect Infant (or Dying) IndustryProtect Domestic Jobs from Cheap Foreign LaborScientific Tariff or Fair Competition24Trade RestrictionsRetaliationDumping: selling a product abroad for less than the cost of production, the price in the home market, or the price to third countriesSocial dumpingEnvironmental dumpingFinancial services dumpingCultural dumpingTax dumping25Trade RestrictionsSubsidies: Financial contributions, provided directly or indirectly by a government, which confer a benefit; include grants, preferential tax treatment, and government assumption of normal business expenses (figure 3.4) Countervailing duties: Additional import taxes levied on imports that have benefited from export subsidies26Figure 3.4 Value of OECD Member Farm SubsidiesSource: “Agriculture: Support Estimates, 2004,” OECD in Figures: Statistics on the Member Countries. Accessed 7/2005 Link: BarriersTariff Taxes on imported goods for the purpose of raising their price to reduce competition for local producers or stimulate local productionAd Valorem Duty An import duty levied as a percentage of the invoice value of imported goods Specific Duty A fixed sum levied on a physical unit of an imported good28Tariff BarriersCompound Duty A combination of specific and ad valorem dutiesOfficial PricesVariable Levy An import duty set at the difference between world market prices and local government-supported pricesLower Duty for more local Input29Nontariff BarriersNontariff barriers (NTBs) All forms of discrimination against imports other than import duties Quantitative Quotas: numerical limits placed on specific classes of importsVoluntary export restraints (VERs): Export quotas imposed by exporting nation30Nontariff BarriersOrderly Marketing Arrangements Formal agreements between exporting and importing countries that stipulate the import or export quotas each nation will have for a goodNonquantitative Nontariff Barriers Direct government participation in tradeCustoms and other administrative proceduresStandards31From Multinational to Globally Integrated Manufacturing SystemsClose least efficient plants, and supply their markets with imports from other subsidiariesChange multidomestic manufacturing system to globally integrated system in which each plant performs the activities at which it is most efficient32International Investment TheoriesMonopolistic Advantage Theory Theory that FDI is made by firms in oligopolisticindustries possessing technical and other advantagesover indigenous firmsProduct and Factor Market Imperfections Superior knowledge leads to differentiated products, and they lead to firm control on price and advantage over indigenous firm (Hymer and Caves)Financial Factors Imperfections in the foreign exchange markets (Aliber)International Product Life Cycle33International Investment TheoriesFollow The LeaderCross InvestmentForeign direct investment by oligopolistic firms in each other’s home countries as a defense measureInternalization TheoryAn extension of the market imperfection theory: to obtain a higher return on its investment, a firm will transfer its superior knowledge to a foreign subsidiary rather than sell it in the open market34International Investment TheoriesDynamic Capabilities Theory that for a firm to successfully invest overseas, it must have ownership of unique knowledge or resources and the ability to dynamically create and exploit these capabilitiesDunning’s Eclectic Theory Of International ProductionTheory that for a firm to invest overseas, it must have three kinds of advantages: ownership-specific, internalization, and location-specific35