Lower of sluggish standard of living in globally uncompetitive industries Foreign Direct Investment (FDI) brings funds and business culture from abroad, creates new jobs, introduces innovative technologies, and enhances the skills of domestic workers. Emerging countries tend to attract sizeable amounts of FDI. Exhibit 2.3 Net Inflows of Foreign Direct • Investment by region and Industrialization. DISCUSSION STARTER: REALITY CHECK 1. Visit the retail store where you purchase everyday necessities and pick out ten items that you regularly use. Now, look at the labels and find out how many of them come from abroad. Can you imagine what your life would be like if we did not have international trade? III. Major Theories of International Trade. No single nation in the world is capable of producing all the goods and services it needs. Neither does any nation have the required resources. Therefore, nations of the world need to trade. Theories of international trade provide an appreciation for the progress made in understanding how trade works. They also present a rationale why restriction to trade should be minimized. Wealth Accumulation as a Basis for Trade Theory: Mercantilism. is a theory of international trade that supports the premise that a Mercantilism nation could only gain from trade if it had a trade surplus. It’s an oldest theory. Mercantilists believed that for a nation to become wealthy, the nation had to export as much as possible, and the value of exports should exceed those of imports, which are viewed as a cost. If every trading nation decided to increase its exports, the surplus of exported goods in the world market would depress prices and decrease earnings of exporting countries. Specialization as a Basis for Trade Theory: Absolute and Comparative Advantage. Adam Smith argued and proved that free trade without restrictions would increase the wealth of nations. Absolute Advantage exists when one country can produce a good more efficiently than another. Theory of comparative advantage is a refinement of Adam theory and is attributed to David Ricardo. It claims that a country should
Lower of sluggish standard of living in globally uncompetitive industries Foreign Direct Investment (FDI) brings funds and business culture from abroad, creates new jobs, introduces innovative technologies, and enhances the skills of domestic workers. Emerging countries tend to attract sizeable amounts of FDI. Exhibit 2.3 • Net Inflows of Foreign Direct Investment by region and Industrialization. DISCUSSION STARTER: REALITY CHECK 1. Visit the retail store where you purchase everyday necessities and pick out ten items that you regularly use. Now, look at the labels and find out how many of them come from abroad. Can you imagine what your life would be like if we did not have international trade? III. Major Theories of International Trade. No single nation in the world is capable of producing all the goods and services it needs. Neither does any nation have the required resources. Therefore, nations of the world need to trade. Theories of international trade provide an appreciation for the progress made in understanding how trade works. They also present a rationale why restriction to trade should be minimized. Wealth Accumulation as a Basis for Trade Theory: Mercantilism. Mercantilism is a theory of international trade that supports the premise that a nation could only gain from trade if it had a trade surplus. It’s an oldest theory. Mercantilists believed that for a nation to become wealthy, the nation had to export as much as possible, and the value of exports should exceed those of imports, which are viewed as a cost. If every trading nation decided to increase its exports, the surplus of exported goods in the world market would depress prices and decrease earnings of exporting countries. Specialization as a Basis for Trade Theory: Absolute and Comparative Advantage. Adam Smith argued and proved that free trade without restrictions would increase the wealth of nations. Absolute Advantage exists when one country can produce a good more efficiently than another. Theory of comparative advantage is a refinement of Adam theory and is attributed to David Ricardo. It claims that a country should
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