Chapter 6
International
Trade Theory
Why do we trade what we do?
Some patterns of trade are fairly easy to explain
Saudi Arabia exports oil
Ghana exports cocoa, and
Brazil exports coffee
But, why does Switzerland export chemicals,
pharmaceuticals, watches, and jewelry?
Why does Japan export automobiles, consumer
electronics, and machine tools?
5-2
Trade Theory – Film “Food Crisis”
Think about these questions while watching (8 min):
1. Why did food prices rise and there were shortages?
2. What do you think might be a solution?
Food Crisis for the Poor
Major Theories – 3 Beliefs
Promote
Exports
3
1
2
Selective
Free Trade
Intervention
Trade Theories
Mercantilism
2
1
Leontief Paradox 1
Heckscher-Ohlin
1
Absolute Advantage
Comparative Advantage
Product Life Cycle
1
3
1 Porter’s Diamond 3
Samuelson Critique 1
New Trade Theory
In Groups:
1. Describe each theory
2. Which belief does each theory suggest?
12,18,25,27,34,40,45
5-4
Trade Theory And Government Policy
Free Trade
Heckscher-Ohlin, Absolute Advantage, Comparative
Advantage, Leontief Paradox, Samuelson critique, and
Product Life Cycle tend to promote unrestricted free trade
Promote Exports
Mercantilism makes a crude case for government
involvement in promoting exports and limiting imports
Selective Government Intervention
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
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