...Exercise Two Development of the Cochlear implant: Drawing upon New Trade Theory and Porter’s Theory of National Competitive Advantage as discussed in the lecture, outline the case for government assistance to emerging industries. Relate your answer to the Cochlear Case. Without government funding, would it have been possible to develop this product in Australia? Prior to government funding, Professor Clark was able to reach the prototype stage of the development of the Cochlear Implant. However, without government funding, there would have been inadequate finances and resources to commercialise the product and make it available to the public. The Australian governments role in the development of this product supports the theory of government role in supporting emerging products outlined in Porters Theory of National Competitive Advantage. The theory outlines that through strict product standards, focus on specialised factor creation and enforcing antitrust laws, governments can encourage organisations to a more competitive level. Australia has advantageous “Factor Conditions” for the development of a technology such as the Cochlear implant, due to being a first world country with leading technology. The “Demand Conditions” for the Cochlear Implant stretched further than simply Australia - as evident by the 50,000 cases in Japan. Furthermore, the supporting industries - such as “Nucleus” aided in the internationalisation of the product as it progressed into...
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...International Trade Theories For starters, international trade theories are theories that explain international trade. Since trade is basically the exchanging of goods and/or services between entities or people, then international trade would be the exchanging of goods or services between countries. International trade happens in an effort to benefit the countries involved, in some way. According to the U.S. Chamber of Commerce, “America cannot have a growing economy or life wages and incomes of our citizens unless we continue to reach beyond our borders and sell products, produce, and services to the 95% of the world’s population that lives outside the United States. More than 38 million Americans jobs depends on trade.” (U.S. Chamber of Commerce). This paper will address different international trade theories, specifically mercantilism, absolute advantage, comparative advantage and balance of trade, to give a better understanding of international trade as well as why the government gets involved, how this may impact our company and why managers of international businesses should know these theories. “Mercantilism is a trade theory holding that a country’s wealth is measured by its holdings of ‘treasure,’ which usually means its gold.” (Daniels, Radebaugh & Sullivan, 2011 pg. 219). This theory states that countries should export (get others to buy from you) more goods and/or services than they import (others selling to you) in order to receive payment (gold) from other...
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...The theory of international trade: 1. Mercantilism Theory. 2. Absolute Advantage Theory. 3. Comparative Advantage Theory. 4. Heckscher-Ohlin's Theory 5. Porter’s Diamond of Competitive Advantage Theory. Mercantilism The first theory of international trade ,mercantilism, engaged in England in the Mid 16th century holding that a countries wealth is measured by its holdings of treasure which usually means its gold & silver. The principal assertion of mercantilism was that gold and silver were the mainstays of national wealth and essential to vigorous commerce. At that time gold & silver were the currency of trade between countries,a country could earn gold & silver by exploiting goods. Conversely, importing goods from other countries would result in a outflow of gold & silver to those countries.The main tenet of mercantilism was that it was in a country’s best interest to maintain a trade surplus,to export more than it imported.By doing so,a country would accumulate gold and silver and, consequently ,increase its national wealth, prestige & power. Government policies: Consistent with this belief, the mercantilism doctrine advocated government intervention to acieve a surplus in the balance of trade.The mercatelists saw no virtue in a large volume of trade.Rather they recommended policies to maximize exports and minimize imports.To achieve this. import were limited by tarrif and quotas.while exports were subsidized. The concept of Balance of Trade: ...
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...International Trade Theories Name Institution International Trade Theories International trade entails the exchange of goods and/or services amongst nations. Such economic exchanges have taken place for several centuries and now, more than ever before, all countries are becoming an intrinsic part of the world economy. This has led to the increased usage of concepts such as spaceship earth and global village which reflect the fact that the modern marketplace is fundamentally international. A myriad of theorists have come up with a host of theories over the years in a bid to explain why nations trade with one another and how they try to maximize their gains right from the mercantilism theory which was founded on the believe that countries ought to increase their gold and silver coffers by capitalizing on their exports and decreasing their imports developed in the sixteenth century, to Porter’s Theory developed in 1990s and whose foundation was on the belief that a country’s competitiveness is determined, to a great extent, by its ability to have new innovations and constant upgrading (Bradley, 2011). Absolute Advantage This theory was advanced by Adam Smith in 1776, as a challenge the mercantile theory of wealth of nations as determined by its gold and silver holdings. Although recent economic theorists have attempted to edit the original version of the theory, its fundamental assertion that nations have an advantage if they produce the goods or services that they are more efficient...
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...New Trade Theory 1. (a) Explain the new trade theory. What is the role of economies of scale in this theory? The new trade theory focusses on productivity rather than the types of resources that are available in a nation. This justifies government intervention in support of the development of certain industries involved in exports. First mover advantage indicates that as production of a specialized product increases, it also becomes more efficient, increasing input. Therefore, as output and specialization increase, economies of scale can be realized. Companies that are the first to enter a specific industry can dominate that industry and create barriers to entry, as they benefit from increasing returns. It has been stated by economists that reaching economies of scale has implications on international trade. Economies of scale are a major source of cost reductions in many industries. By using assembly line production with specialized equipment, and/or employees with specialized tasks, fixed unit costs are dispersed over large scale outputs, with increased productivity. By trading products between nations, more choices become available to consumers at lower costs. As well, in specific industries where the output totals a significant portion of the total world demand, the global market may only be able to support a limited number of companies. (b) Discuss the implications of the new trade theory. Nations benefit from trade as it...
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...Theories of international trade and investment Classical Theories (Why do nations trade?) Mercantilism and Neomercantilism: Mercantilism - A belief popular in the 16th century that national prosperity results from maximizing exports and minimizing imports Neomercantilism - The idea that the nation should run a trade surplus - Supporters includes: Labor unions (who want to protect domestic jobs) Farmers (who want to keep crop prices high) Some manufacturers (that rely on exports) Free trade - The absence of restrictions to the flow of goods and services among nations Leads to: - More and better choices for consumers and firms - Lower prices of goods for consumers and firms - Higher profits and better worker wages (because imported input goods are usually cheaper) - Higher living standards for consumers (because their costs are lower) - Greater prosperity in poor countries Absolute advantage principle - A country should produce only those products in which it has absolute advantage or can produce using fewer resources than another country - i.e. France could employ more of its resources to produce cloth Germany could employ more of its resources to produce wheat Labor cost in days of production for one ton: One ton of: France 30 40 Germany 100 20 Comparative Advantage Principle - Country, location specfic - The foundation concept of international trade that answers of how nations can achieve and sustain economic success...
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...International Trade Theory and Policy Institution Date The aim of this article is to discuss a number of issues associated with the international trade theory and policy. First, the motives, nature and purpose of the original General Agreement on Tariffs and Trade have been discussed in this article. Also, the extent to which this purpose was achieved in the first 6 rounds of negotiations has been discussed. The reasons that drove President Reagan and his administration to propose the eighth round of negotiations are also featured in this article. Lastly, the reasons why there is still a significantly steep “effective” tariff hampering global free trade, despite fairly low tariffs on final goods have also been discussed in this article. The General Agreement on Tariffs and Trade (GATT) was formed in1947. This was after the United Nation conference whose aim was to create the International Trade Organization failed. The GATT came to an end in 1993. In 1995, the (World trade organization WHO) replaced GATT. GATT principal purpose was to boost fair trade by reducing and taking control of the trade tariffs amongst its member countries. In addition, it was responsible solving any trade disputes between the member countries. Before it ended, The GATT had become interested in the intellectual property rights and the effects of global trade on the environment. The General Agreement on Tariffs and Trade had a provision known “as the most favored nation status.” GATT refers...
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...Assignment I GOUTAM MUKHERJEE Ist Semester International Business Evolution of Trade Theories over the years Trade among counties is happening for ages. At the very basics, trade is about buying and selling – something human beings have been doing since they started living in societies. However, the same used to happen without any rules and regulations and completely depending on the individual or a group of traders. Over period of time countries have realized the need of cross country trading in a structured manner which can bring benefits to the economy and socio-political development. The countries may have strengths in one area based on their populations, or by strategically placed location or by natural resources it has. The countries need to focus on that what they can do best and import what they can get cheaper compared to production in own country. This new era that is unfolding amidst us is characterized by ideas and innovation. It took thousands of years for human society to progress from an agricultural economy to an industrial economy. Here are the trade theories which discussed on self sufficiency and free trade policies. Mercantilist policy tries to make a country self sufficient. Interventionist Mercantilism: According to this theory a country’s wealth is measured by its holdings of treasure, which usually meant its gold. This means a country should export more than imports, if successful, receive gold...
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...------------------------------------------------- The development of the classical theories of international trade between countries March 30, 2016 Danel Louw 17752302 March 30, 2016 Danel Louw 17752302 Contents Introduction 1 1 Mercantilism 2 2 Absolute Advantage 2 3 Comparative Advantage 3 4 Factor Proportions 4 5 Bibliography 6 * * Introduction International trade may seem simple. It is simply the exchange of goods between two people or entities from two different countries. People trade because they get some kind of benefit in the transaction. Sometimes it is something that they need and sometimes it is something that they desire. International trade it is not always that simple. There is a lot of theory, business strategy and policy behind it. International trade can be described in many different ways. There are many different theories, classical and modern, that we use to describe International trade. Mercantilism Mercantilism was developed in the sixteenth century. It was the first effort in developing an economic theory at the time. This theory stated that a country’s wealth was determined by the amount of its gold and silver holdings (Anonymous, 2012). Mercantilists believed that a country should increase its holdings of gold and silver by promoting exports and discouraging imports. In other words the government would use policies to encourage exports while restricting imports. They would do this by rewarding merchants...
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...International Trade Theory 1. What is the major benefit of trade identified in theories of international trade? 2. What do theories of international trade teach us about the patter of trade in the world economy? 3. How do trade theories inform government policy? 4. What are the main differences among mercantilism, Adam Smith’s theory of absolute advantage, and David Ricardo’s Theory of comparative advantage? 5. Why is the theory of comparative advantage so important in today’s world? 6. According to the theory of comparative advantage, what is the relationship between free trade and economic growth? Does the empirical evidence support this prediction? 7. What is the criticism that Paul Samuel made of theories that advocate free trade? 8. How is the Heckscher-Olin theory different from the theory of comparative advantage? 9. What is the Leontief paradox? Why is it important? 10. What are the central predictions of the product lifecycle theory? What are the limitations of this theory? 11. What does new trade theory tell us about the patter of trade in the world economy? 12. What are the implications of new trade theory for government policy? 13. According to Porter/s theory of national competitive advantage, what are the elements explain why different countries achieve international success in certain industries? 14. What are the implications of Porter’s Theory for government policy? 15. What are the implications of theories of international...
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...According to the static trade-off theory firms with higher profits tend to have higher leverage ratio. But this statement contradicts with empirical evidence: more profitable companies have lower leverage ratio. Such findings lead to rejection of the static trade-off theory and more attention to other theories such as dynamic trade-off theory, pecking order theory and other. In the given article, Frank and Goyal pursue the aim to prove that the literature has misinterpreted the evidence as a result of applying irrelevant empirical methods (leverage ratios). For example, leverage ratios do not distinguish variations that operate through an effect on E and D. The static theory gives results for financial decisions at the margin, while leverage ratios are an evaerage of totals. The difference in cost structure of large and small firms is also omitted and leads to wrong results. So the authors argue that such ratios have undesirable properties for examining the static trade-off theory. Conducting the research, the authors obtained the data from Compustat and CRSP. Frank and Goyal also state that using leverage ratios is not right, because it omits several features. They investigated the static trade-off model of capital structure using 2 regressions that explain debt and equity respectively. The authors describe how to deal with the exogeneity of profits. Frank and Goyal research led to several results: highly profitable firms issue debt and buyback shares while less profitable...
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...opportunity in regards to Free Trade. However, Free Trade does impact the businesses I assist in relation to Government Contracting. Any business doing government contracting has to be aware of the “Buy American Act.” (BAA) This act restricts the purchase of supplies that are not domestic end products for use within the United States. A foreign end product may be purchased if the contracting officer determines that the price of the lowest domestic offer is unreasonable or if another exception applies. The (BAA) is a preference for American goods designed to protect domestic labor. It was enacted in 1933 and has been amended four times. The restrictions in the (BAA) are not enforced in certain procurements that are subject to some trade agreements. In these procurements, end products and construction materials from specific countries receive nondiscriminatory treatment in evaluation with domestic offers. In most cases, the dollar value of the procurement determines which of the trade agreements apply. The BAA appears to control most procurements of the federal government but may be controlled by other legislation or international agreement. The Trade Agreement Act of 1979 authorizes the President to waive any otherwise applicable law, regulation, or procedure regarding Government procurement that would accord foreign products less favorable treatment than that given to domestic products. Article 1004 of the North American Free Trade Agreement (NAFTA) disallows domestic...
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...Date: 5th December, 2005 Name: Ayesha Petafi Student ID: 163327 Degree Title: Bsc. Development Economics (2nd year) _____________________________________________________________ Course Name: Foreign Trade and Economic Development Course Code: 153400106 Tutor’s Name: Sahar Rad _____________________________________________________________ Title of Essay: Discuss how trade leads to the convergence of factor prices in the Heckscher-Ohlin Model. Does empirical evidence validate the propositions of this theory? Word Count: 2,909 words Essay 1 : Discuss how trade leads to the convergence of factor prices in the Heckscher-Ohlin Model. Does empirical evidence validate the propositions of this theory? Abstract The Heckscher-Ohlin model (H-O model) states that a country possesses comparative advantage for those goods whose factors of production are in relatively abundant supply in the country’s endowment. Input combinations depend on the relative factor prices and these in effect, influence the goods prices. Factor prices and the goods prices have a one-to-one relationship. Countries tend to export goods, whose production makes intensive use of the resources. There are four components to the H-O model, and these are: The Heckscher-Ohlin Theorem, The Stopler-Samuelson Theorem, The Rybczynski Theorem and The Factor-Price Equalisation Theorem. The Heckscher-Ohlin model (H-O model) was developed by Eli Heckscher and Bertil Ohlin at the Stockholm School of Economics [Krugman and Obstfeld...
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...Globalization What is globalization, and what are some of the traditional international trade theories that support the concept of globalization? Globalization is defined as a shift towards an integrated world economy (Hill, 2009). Globalization can be explained in many ways, one is the globalization of production. For example, computer hardware or software, cell phones, food, and music are all products that are distributed globally. Globalization is the process in which economies of countries all over the globe become integrated over time leading to organizations having access to a larger market base and customers having access to a greater variety of goods and services. Globalization is also a method of communication and integration among the consumers, organizations, and governments of different nations, which is driven by international trade and investment and assisted by information technology. This process has effects on the environment, culture, political systems, economic development, and on human nature in societies around the world. Supporting the concept of globalization are several traditional international trade theories, including Free Trade, New Trade, and Mercantilism. List the major drivers of globalization and give three examples of each. Several drivers underline the continued trend of globalization in today’s popular culture. The first is the decline in barriers to the free flow of goods, services, and capital (Hill, 2009). Companies...
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...ignored. Please see the other helpful writing resources in the Tutorials and Guides section of the Center for Writing Excellence. Thank you for using WritePoint. Globalization Questionnaire Globalization is simply the shift towards [The preferred spelling is "toward"] both a more integrated and a more interdependent economy (Hill, 2009). While ["While" is accurate in linking simultaneous events (meaning "during"), but if that is not the case here, use "although," "whereas," "and," or "but"] not all of the theories that surround traditional international trade support the concept of globalization there are a few that do such as the Heckscher-Ohlin Theory [Do not capitalize the name of a theory unless it contains a proper noun (someone's name)] , the New Trade Theory, Porter’s Theory, and the Product Life-Cycle (Hill, 2009). Drivers of Globalization There are two primary drivers of globalization, declining trade and [in academic writing, if this is a series, place a comma...
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