Chapter 2: International Trade Policy and Trade Institutions
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Global Marketing: Foreign Entry, Market Development & Strategy Implementation First Canadian Edition (Czinkota/Ronkainen/Farrell/McTavish)

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Evolution of International Trade
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 Mercantilism (1500 – 1750)  Import raw materials from ‘colonies’ at low cost  Positive balance of trade
Exports subsidized  Imports taxed
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Create positive balance of trade

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Evolution of International Trade
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 Theory of Absolute Advantage  Country specializes only in products they can produce efficiently
Natural resources  Fewest units of labour to produce
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Import all other products Encourages trading between countries

 Theory of Comparative Advantage  Does not require Absolute Advantage to trade  Trade to maximize labour effectiveness for the country

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Evolution of International Trade
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 Heckscher-Ohlin Model  Extends comparative advantage  Factors that vary by country
Labour  Capital
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Trading based on price differences between countries

 Product Cycle Theory  Stage 1 – innovative product, home country develops and sells domestically  Stage 2 – begin export to other similar countries  Stage 3 – manufacture in developing countries, sell everywhere
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Evolution of International Trade
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 Country Similarity Theory (Linder)  Country trades more with another with similar income levels  Less trade with dissimilar economies  May explain manufactured products  Krugman’s Model of International Trade  Considers monopolistic competition, economies of scale  Both parties benefit
Cheaper product cost for consumer  Larger market potential
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