International Business Midterm Exam – Flashcards

Minimal Government Involvement

Policy Calling for local Production

Liberalization of imports, export promotion. and incentives for foreign investment

Production of Specific Types of Products

Trade Theory helps us answer what products we should import and export. How much we should trade, and whom we should trade with.

Free Trade Theories- absolute advantage and comparative advantage

Mercantilism and Neomercantilism

Neomercantilism will deter imports, promote exports, higher prices of goods traded abroad, controls government involvement so that the level of money held in the federal reserves of that country increases. run an export surplus to maintain social or political advantages.

Mercantilism was a theory of trade that was once dominant in midcentury Europe. This theory calls for a favorable balance of trade, where the country would always be exporting more than it is importing. Maintain a trade surplus avoid trade deficit

The connection between international operations and economic intervention is importing and exporting goods and services, transferring production factors such as labor and capital internationally.

Market forces should determine trade specialization, comparative advantage and absolute advantage are two theories that support free trade

Theory of Absolute Advantage is that different countries will produce goods more efficiently than others, free trade brings specialization, natural advantage, acquired advantage, product technology and process technology. Greater efficiency and higher output.

take into account country size, factor proportions, and country similarity

Theory of comparative suggests that free trade can increase global output even id one country has an absolute advantage in the production of production of all products.

Product life cycle and diamond of national advantage

Large countries will depend less on trade than smaller countries. Large countries usually export a smaller portion of output and import a smaller part of consumption. Have higher transportation costs for foreign trade.

Factors in relative abundance are cheaper than factors that are relatively scarce. But production factors are not homogenous. Labor, production technology, and capital versus labor (process theory)

Country similarity theory- when companies create new products in response to market conditions in their home market and then look for markets that are close to home and are most similar to what they are accustomed to. Most trade occurs among developed countries. Share similar market characteristics. Produce and consume much more than developing countries. Distance.

Product life cycle theory- the production location of certain manufactured products shifts as they go through their life cycle. There are four stages to the product life cycle. They are introduction growth, maturity and decline.

The diamond of natural advantage are the four conditions that are important for gaining and maintaining competitive superiority -diamond of national advantage includes- Factor conditions demand conditions, related and supported industries, firm strategy, structure, and rivalry.

Factor mobility theory-focuses on why production factors move, the effects of that movement on transforming factor endowments, and the impact of international factor mobility on world trade

Factor movements alter factor endowments, factor movements can be substantial for some countries and insignificant for others. The movement of labor and capital are intertwined. Pros and cons of outward and inward migration. Brain Drain and remittances.

There are pressures for most abundant factors to move areas scarcity -The lowest costs occur when trade and production factors are both mobile Factor mobility through foreign investment often stimulates trade because of the need for components, the parent's ability through foreign investment often stimulates trade because of the need for components, the parents ability to sell complimentary products, and the need for equipment for subsidiaries.