Introduction to Trade Theories and the Ricardian Model

Apuntes

International Management L2 - International Trade theories Mercantilism and neo-mercantilism Theory of comparative advantage: The Ricardian model Objectives • Comprehend the historical and current rationale for interventionist trade theories • Explain how free trade improves global efficiency (Ricardian model) • Opportunity costs and comparative advantage • Production possibilities • Gains from trade (welfare and prices) • Wages, exchange rate and trade • Transportation costs and non-traded goods • Misconceptions about comparative advantage • Empirical evidence: • wages reflect productivity • trade patterns reflect relative productivity Intervention versus Laissez-Faire • Theories that support government intervention in the flow of trade • Mercantilism • Neomercantilism Mercantilism (1500-1800) countries should export more than they import • Maintain a favorable balance of trade (trade surplus) • Avoid an unfavorable balance of trade (trade deficit ) Neomercantilism run an export surplus to achieve social or political objectives Laissez-Faire versus Intervention Laissez-faire approach • Market forces should determine trade specialization • Specialization results in higher efficienc...