Trade Theories

• exhibit 5.1: arranges leading theories of international trade and investment into two groups - nation level theories and firm level theories
• nation level theories are classical theories, widely accepted since the 18th century
• nation level theories address two questions:

  1. why do nations trade?
  2. how can nations enhance competitive advantage?
• firm level theories are contemporary theories of how firms can create and sustain superior organizational performance
• firm level theories address two questions:

  1. why and how do firms internationalize?
  2. how can internationalizing firms gain and sustain competitive advantage?
• even resource rich countries such as the United States would suffer greatly without trade
• without trade, coffee and sugar would be luxury items
• without trade, petroleum based energy sources would dwindle
• without trade, vehicles would stop running, freight would go undelivered, and people wouldn't be able to heat their homes
• modern life would be nearly impossible without trade
• six classical perspectives help explain the underlying rationale for trade among nations:

  1. mercantilism
  2. absolute advantage principle
  3. comparative advantage principle
  4. factor proportions theory and the Leontief Paradox
  5. international product life cycle theory
  6. new trade theory