International Trade theory

• Absolute advantage theory argues that trade benefits nations that can produce goods at a lower cost.
• International Business: Competing in the Global Marketplace by Charles W. L. Hill, 7th ed.
• Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc.
• Copyright years of the publication

  2009, 2007, 2005, 2003, 2000, 1997, 1994
• No part of this publication may be reproduced or distributed without prior written consent
• Some ancillaries, including electronic and print components, may not be available to customers outside the United States
• This book is printed on acid-free paper
• Charles W. L. Hill is the Hughes M. Blake Professor of International Business at the School of Business, University of Washington
• Professor Hill received his Ph.D. from the University of Manchester's Institute of Science and Technology (UMIST) in Britain
• Professor Hill has published over 40 articles in peer-reviewed academic journals
• Professor Hill has served on the editorial boards of several academic journals
• Professor Hill teaches in the MBA, Executive MBA, Management, and Ph.D. programs at the University of Washington
• Professor Hill has received awards for teaching excellence in the MBA, Executive MBA, and Management programs
• Professor Hill works on a consulting basis with a number of organizations
• Professor Hill's clients have included ATL, Boeing, BF Goodrich, Hexcel, House of Fraser, Microsoft, Seattle City Light, Tacoma City Light, Thompson Financial Services, and Wizards of the Coast
• Library of Congress Cataloging-in-Publication Data
• Table of Contents: Introduction and Overview, Country Differences, The Global Trade and Investment Environment
• Cases in Regional Economic Integration

  • Agricultural Subsidies and Development
  • Boeing versus Airbus: Two Decades of Trade Disputes
  • The Politics of Trade in Steel
  • Dixon Ticonderoga—Victim of Globalization?
  • Drug Development in the European Union
  • Logitech
• Chapters in The Global Monetary System

  • The Foreign Exchange Market
  • The International Monetary System
  • The Global Capital Market
• Cases in The Global Monetary System

  • The Tragedy of the Congo
  • The Russian Ruble Crisis and Its Aftermath
  • Japan's Surging Samurai Bond Market
• Chapters in The Strategy and Structure of International Business

  • The Strategy of International Business
  • The Organization of International Business
  • Entry Strategy and Strategic Alliances
• Cases in The Strategy and Structure of International Business

  • Toyota—The Rise of a Global Corporation
  • Nestlé: Global Strategy
  • Strategic and Organization Change at Black & Decker
  • Organizational Culture and Incentives at Lincoln Electric
• Chapters in International Business Operations

  • Exporting, Importing, and Countertrade
  • Global Production, Outsourcing, and Logistics
  • Global Marketing and R&D
  • Global Human Resource Management
  • Accounting in the International Business
  • Financial Management in the International Business
• Cases in International Business Operations

  • Molex
  • Procter & Gamble in Japan
  • Merrill Lynch in Japan
• International Trade Theory


  • Mercantilism
  • Absolute Advantage
  • Comparative Advantage
  • Heckscher-Ohlin Theory
  • The Product Life-Cycle Theory
  • New Trade Theory
  • National Competitive Advantage: Porter's Diamond
• International trade theory has shaped the economic policy of many nations for the past 50 years
• International trade theory was the driver behind the formation of the World Trade Organization and regional trade blocs such as the European Union and the North American Free Trade Agreement (NAFTA)
• The 1990s saw a global move toward greater free trade
• Free trade stimulates economic growth and raises living standards across the board
• There is a global move toward greater free trade
• It is crucially important to understand the theories behind free trade and why they have been successful in shaping economic policy and the competitive environment for international businesses
• This chapter has two goals: to review theories explaining the benefits of engaging in international trade and to explain the pattern of international trade observed in the world economy
• The chapter will primarily focus on explaining the pattern of exports and imports of goods and services between countries, not on foreign direct investment
• Mercantilism


  Advocated encouraging exports and discouraging imports
• Adam Smith's theory of absolute advantage

  Explains why unrestricted free trade is beneficial to a country
• The theory of comparative advantage by David Ricardo

  The intellectual basis of the modern argument for unrestricted free trade
• The Heckscher-Ohlin theory by Eli Heckscher and Bertil Ohlin


  Refinement of Ricardo's work in the 20th century
• The theories of Smith, Ricardo, and Heckscher-Ohlin identify the specific benefits of international trade
• International trade allows countries to specialize in producing and exporting products efficiently while importing products that can be produced more efficiently in other countries
• Difficult for some to accept that a country may gain from buying certain products from other nations that could be produced at home