International Business Chapter 5

International Trade

Purchase, sale, or exchange of goods and services across national borders.

Volume of International Trade

Most of world merchandise trade is composed of trade in manufactured goods. The levels of world trade influences the volume of trade.

Mercantilism

Trade theory that nations should accumulate financial wealth, usually in the form of gold, by encouraging exports and discouraging imports. (zero sum)

Trade Surplus

Condition that results when the value of a nation's exports is greater than the value of its imports.

Trade Defecit

Condition that results when the value of a nation's imports is greater than the value of its exports.

Absolute Advantage

Ability of a nation to produce a good more efficiently than any other nation. (positive sum)

Comparative Advantage

Inability of a nation to produce a good more efficiently than other nations but an ability to produce that good more efficiently than it does any other good.

Factor proportions theory
(Heckscher-Ohlin Theory)

Trade theory stating that countries produce and export goods that require resources (factors) that are abundant and import goods that require resources in short supply.

International Product Life Cycle Theory

Theory stating that a company will begin by exporting its product and later undertake foreign direct investment as the product moves through its cycle.

New Trade Theory

Trade theory stating that (I) there are gains to be made from specialization and increasing economies of scale, (2) the companies first to market can create barriers to entry, and (3) government may play a role in assisting its home companies.

National Competitive Advantage Theory

Trade theory stating a nation's competitiveness in an industry depends on the capacity of the industry to innovate and upgrade.

First-mover Advantage

Economic and strategic advantage gained by being the first company to enter an industry