BAFIN ( Chapter 02 )

• Mercantilism 

  • based on the idea that a nation's wealth and power were best served by increasing exports and reducing imports.
• Comparative Advantage

  • According to David Ricardo
  • it makes sense for a country to specialize in the production of goods that it produces most efficiently and to buy the goods that it produces less efficiently from other countries.
• Game Theory

  • zero/negative sum game ( no party benefited )
  • Positive sum game ( both party benefitted ) 
• Heckscher-Ohlin Theory

  • By Swedish economists Eli Heckscher (in 1919) and Bertil Ohlin (in 1933) 
• Heckscher-Ohlin Theory

  • They argued that comparative advantage arises from differences in national factor endowments. 
• Heckscher-Ohlin Theory

  •  If a country has abundance in a factor endowment, they must specialize the production of the product.
• Heckscher-Ohlin Theory

  • A country must specialize in a product where they are good in making.
• New Trade Theory 

  • Emerge in 1970 
  • ability of firms to attain economies of scale might have important implications for international trade.
• New Trade Theory 

  • The theory also suggests that a country may predominate in the export of a good simply because it was lucky enough to have one or more firms among the first to produce that good.
• New Trade Theory 

  • The theory suggests that nations may benefit from trade.
• Economies of Scale 

  • Major source of cost reduction in many industries
• Economies of Scale 

  • Reduction of average cost per unit upon maximizing the level of output
• Economies of Scale 

  • Increases product efficiency
• Diseconomies of Scale

  • Reduction of product efficiency
• Variety

  • Product type or category 
• Assortment 

  • Number of items or products in a category, ex.brand, size, color and design
• First Mover Advantage 

  • economic and strategic advantages that accrue to early entrants into an industry.
• First Mover Advantage 

  • ability to capture scale economies ahead of later

  entrants, and thus benefit from a lower cost structure
• Porters Diamond

  • Explains that there is no significance of having advance factor to gain competitive advantage but we can use innate factors to gain advance factors.
• Porters Diamond

  • Created by Michael Porter
  • explains the factors that can provide a competitive advantage for one national market or economy over another
• Porters Diamond

  • includes the factors of strategy, structure and rivalry, related industries, demand conditions, and factor conditions.
• Basic Factors 

  • Naturally  existing and innate in nature
  • Natural resources, climate, location, and demographics
• Advance Factors

  • Infrastructure , skilled labor, research facilities
• Demand Condition 

  • Producers are being pressured to innovate their products, invest in research and provide highest product quality.
• Related and supporting industries

  •  The presence or absence of supplier industries and related industries that are internationally competitive.
• Factor Endowment

  • Amount of land, labor, capital and entrepreneurship that a country can exploit
• Current account 

  • transactions in goods, services, and current transfers.
• Capital account

  • broadly defined, includes transactions in financial instruments and central bank reserves.
• Financial Instrument

  • Monetary contract that is transferable.
• Current transfers 

  • are transactions where the originator does not receive a “quid pro quo” in return
• Quid Pro Quo

  • Something for something 
• Quid Pro Quo

  • No mutual agreement of exchanging good reciprocally (ONE SIDED TRANSACTION)
• General Government Transfers

  • Cash transfers between governments for financing current expenditures by the recipient government
  • Gifts of food, clothing, medical aid, etc. as relief efforts after a natural disaster
  • Other transfers such as social security contributions
• Other sector transfers

  • Workers’ remittances by migrants (someone who stays in another nation for more than a year) who are considered residents of other countries
  • Transfers in cash and kind for disaster relief
  • Regular contributions to charitable, religious, scientific, and cultural organizations
  • Premiums and claims for insurance
• Organization Structures 

  • Outline of how activities delegated to different organizations
• Centralized 

  • Flow of information is coming from the top to bottom
• Decentralized 

  • Flow of distribution of information  is among the level of organization 
•  

  Divisional 

  • Information are designated to different level of organization