INB 5807 - Foundations of Global Business.
(Working on answering a question – 2 Parts)
Part (1) & Part (2)
Very Important Notes:
To start proceeding on this task, and gain the full marks, you will need to consider the followings:
1) Read the (Chapters 4 and 5) from the textbook entitled: (International Business Competing in the Global Marketplace,
14th Edition (Hill, Charles) (z-lib.org). It can be found at this free link (https://1lib.us/). Or ( the google drive link).
2) Chapters titles:
• Chapter 6: International Trade Theory
• Chapter 7: Government Policy and International Trade
3) Read the pdf files entitled:
➢ (Overview).
➢ (Lecturette 1_ Lecture 1_ Trade Theory).
➢ (Lecture 2_ Product Life in the Twenty-First Century).
Note: (Within some of those uploaded files, you will find a YouTube links. Please click on them and explore more information
given to you to have more knowledge and information which will absolutely help you to enrich your answer for parts
(1&2).
4) After reading and going through the indicated entire given materials, chapters (6&7) and the pdf files indicated above,
please,
✓ (Part 1) Answer ONLY ONE of the following questions below.
✓ (Part 2) answer two quality replies of other classmate’s posts. (Will be sent to you 2 classmates
posts later once they post their work).
✓ Remember to Include your chosen prompt at the top of your post.
Note and clarification: (DQ stands for Discussion Question)
Quality posts mean you are providing value-added academic content and/or examples to enrich our
understanding of the course’s concepts (so everyone can learn and be better prepared for the exams) usually,
these value-added DQ answers are about 100 words or more per question; and quality replies can be
anywhere from a complete paragraph to many. Try to use and cite the course textbook to reinforce some
topics that are important for understanding the chapters. You can paraphrase the assigned readings or provide
“direct quotations” to reinforce important concepts, while always providing proper citations such as (Mujtaba,
2022, p. 55) and complete references in the APA format.
The Questions:
A. What is Mercantilism is a bankrupt theory that has no place in the modern world. Discuss.
B. Is free trade fair? Discuss.
C. Unions in developed nations often oppose imports from low-wage countries and advocate trade
barriers to protect jobs from what they often characterize as “unfair” import competition. Is such
competition “unfair”? Do you think that this argument is in the best interests of (a) the unions, (b) the
people they represent, and/or (c) the country as a whole?
D. What are the potential costs of adopting a free trade regime? Do you think governments should do
anything to reduce these costs? Why?
E. Is there a difference between the transference of high-paying white-collar jobs, such as computer
programming and accounting, to developing nations, and low-paying blue-collar jobs? If so, what is
the difference, and should government do anything to stop the flow of white-collar jobs out of the
country to countries like India?
F. Drawing on the new trade theory and Porter's theory of national competitive advantage, outline the
case for government policies designed to build a national competitive advantage in biotechnology.
What kind of policies would you recommend the government adopt? Are these policies at variance
with the basic free trade philosophy?
G. The world’s poorest countries are at a competitive disadvantage in every sector of their economies.
They have little to export. They have no capital; their land is of poor quality; they often have too many
people given available work opportunities; and they are poorly educated. Free trade cannot possibly
be in the interests of such nations. Discuss.
H. Do you think that governments should consider human rights when granting preferential trading rights
to countries? What are the arguments for and against taking such a position?
I. Whose interests should be the paramount concern of government trade policy: the interests of
producers (businesses and their employees) or those of consumers?
J. Given the arguments relating to the new trade theory and strategic trade policy, what kind of trade
policy should business be pressuring government to adopt?
5) Required pages:
(Part 1) - A maximum of 1 page is required.
Total = 1 Page
(Part 2) - (Will be sent to you 2 classmates posts later on once they post their work).
- A maximum of 1 page for classmate’s post [First Student].
- A maximum of 1 page for classmate’s post [Second Student].
Total = 2 Pages
6) APA style is essentially required to gain the full mark.
Week 3 Overview
Welcome to this week’s session. Please continue being ahead on your assigned readings, research
and teamwork.
Learning Outcomes
This week we will be discussing the following chapters:
Chapter 6: International Trade Theory
Chapter 7: Government Policy and International Trade
Learning Outcomes
This week’s learning outcomes include the following:
1. Understand why nations trade with each other.
2. Summarize the different theories explaining trade flows between nations.
3. Recognize why many economists believe that unrestricted free trade between nations will raise
the economic welfare of countries that participate in a free trade system.
4. Explain the arguments of those who maintain that government can play a proactive role in
promoting national competitive advantage in certain industries.
5. Understand the important implications that international trade theory holds for management
practice.
6. Identify the policy instruments used by governments to influence international trade flows.
7. Understand why governments sometimes intervene in international trade.
8. Summarize and explain the arguments against strategic trade policy.
9. Describe the development of the world trading system and the current trade issue.
10. Explain the implications for managers of developments in the world trading system.
Week 3 Lecturette 1: Trade Theory
Free trade refers to a situation where a government does not attempt to influence through quotas or
duties what its citizens can buy from another country or what they can produce and sell to another
country. There must be certain gains from trade for each nation or party.
Smith, Ricardo, and Heckscher-Ohlin show why it is beneficial for a country to engage in international
trade even for products it is able to produce for itself. International trade allows a country to
specialize in the manufacture and export of products that it can produce efficiently and import
products that can be produced more efficiently in other countries. Some patterns of trade are fairly
easy to explain—it is obvious why Saudi Arabia exports oil, the United States exports agricultural
products, and Mexico exports labor intensive goods. Yet others are not so obvious or easily
explained, such as cars exported from Japan.
The various theories have differing prescriptions for government policy on trade. Mercantilism makes
a crude case for government involvement in promoting exports and limiting imports. Smith, Ricardo,
and Heckscher-Ohlin promote unrestricted free trade. New trade theory and Porter’s theory of
national competitive advantage justify limited and selective government intervention to support the
development of certain export-oriented industries. All these theories lack agreement in their
recommendations for government policy.
Mercantilism suggests that it is in a country’s best interest to maintain a trade surplus—to export
more than it imports, and advocates government intervention to achieve a surplus in the balance of
trade. It views trade as a zero-sum game—one in which a gain by one country results in a loss by
another.
Adam Smith argued that countries differed in their ability to produce goods efficiently, and should
specialize in the production of the goods they can produce the most efficiently. Thus, a country has
an absolute advantage in the production of a product. If Ghana were to specialize in cocoa
production and South Korea in rice production, Smith argued that both Ghana and South Korea
could consume more cocoa and rice than if each only produced for their own consumption. Thus,
trade is a positive sum game.
David Ricardo asked what might happen when one country has an absolute advantage in the
production of both goods. Ricardo’s theory of comparative advantage suggests that countries should
specialize in the production of those goods they produce most efficiently and buy goods that they
produce less efficiently from other countries, even if this means buying goods from other countries
that they could produce more efficiently at home. Ricardo’s theory suggests that consumers in all
nations can consume more if there are no restrictions on trade.
The simple example of comparative advantage by researchers makes a number of assumptions: only
two countries and two goods; zero transportation costs; similar prices and values; resources are
mobile between goods within countries, but not across countries; constant returns to scale; fixed
stocks of resources; and no effects on income distribution within countries. While these are all
unrealistic, the general proposition that countries will produce and export those goods that they are
the most efficient at producing has been shown to be quite valid.
The simple model of comparative advantage assumes constant returns to specialization. A more
likely scenario is diminishing returns to specialization where after some point, the more of a good that
a country produces, the greater will be the units of resources required to produce each additional
item. If crops are grown on increasingly less fertile land, mining is done on less productive ore, or
less skilled personnel need to be hired to perform highly skilled jobs, production per unit of input will
decrease. In reality, countries do not specialize entirely, but produce a range of goods. It is
worthwhile to specialize up until that point where the resulting gains from trade are offset by
diminishing returns.
Opening an economy to trade is likely to generate dynamic gains of two types. First, trade might
increase a country's stock of resources as increased supplies become available from abroad.
Secondly, free trade might increase the efficiency of resource utilization, and free up resources for
other uses.
Samuelson argues that in some cases, the dynamic gains from trade may not be so beneficial. He
argues that the ability to offshore services jobs that were traditionally not internationally mobile may
have the effect of a mass inward migration into the United States, where wages fall.
The Heckscher–Ohlin theory predicts that countries will export those goods that make intensive use
of factors of production which are locally abundant, while importing goods that make intensive use of
factors that are locally scarce. It focuses on differences in relative factor endowments rather than
differences in relative productivity.
Using the Heckscher-Ohlin theory, Leontief in 1953 postulated that since the United States was
relatively abundant in capital compared to other nations, the United States would be an exporter of
capital-intensive goods and an importer of labor-intensive goods. To his surprise, however, he found
that U.S. exports were less capital intensive than U.S. imports. Since this result was at variance with
the predictions of the theory, it has become known as the Leontief Paradox.
Raymond Vernon suggested that as products mature, both the location of sales and the optimal
production location will change, affecting the direction and flow of imports and exports.
Week 3 Lecturette 2: Product Life in the
Twenty-First Century
New trade theory suggests that because of economies of scale and increasing returns to
specialization, in some industries there are likely to be only a few profitable firms. Firms with firstmover advantages will develop economies of scale and create barriers to entry for other firms. New
trade theory does not contradict the theory of comparative advantage, but instead identifies a source
of comparative advantage.
A nation may be able to specialize in producing a narrower range of products than it would in the
absence of trade, yet by buying goods that it does not make from other countries, each nation can
simultaneously increase the variety of goods available to its consumers and lower the costs of those
goods. The pattern of trade we observe in the world economy may be the result of first-mover
advantages (economic and strategic advantages that accrue to early entrants into an industry) and
economies of scale.
New trade theory suggests that nations may benefit from trade even when they do not differ in
resource endowments or technology. 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.
You can watch the following video lecture as a review:
1. Differences in Political, Legal and Economic Systems. Link:
https://youtu.be/-WJzjngMVJw
(https://youtu.be/-WJzjngMVJw)
Differences in Political, Legal and Econom…
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