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Lecture 3

GMS 522 week 3.docx

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Ryerson University
Global Management Studies
GMS 522
Helene Moore

GMS 522 GMS 522 Week 3 Chapter 2 International Trade Policy and Trade institutions Theoretical Foundations  Mercantilism  Theory of Absolute Advantage:  The most efficient producer of a certain product  How to allocate resources to produce certain product  Should produce the product that it’s best at making  Theory of Competitive Advantage:  Ratio  What a country should focus production on based on opportunity cost  Heckscher-Ohlin Model:  The more resources used to produce a product, the more likely you should export it  Product Cycle Theory  Country Similarity Theory (Linder):  Countries will exchange goods more so when they have similar needs  Krugman’s Model of International Trade:  Countries will trade only if they can pull profits  Diamond of National Advantage Diamond of National Advantage  Theory suggests that countries act as competitors Page 1 GMS 522 Models of International Investment  Dunning’s OLI framework: ownership advantages, location advantages, internalization advantages Ownership advantage over No Remain domestic foreign rivals? Yes Locational advantage in foreign No Export country? Yes Advantage from internalising No Export production? Yes FDI  Transaction Cost Analysis  Search costs (ex: costs associated with funding suitable input suppliers, agents, and distributers)  Contracting costs (ex: costs associated with negotiating and drawing up contracts)  Monitoring costs (ex: costs associated with monitoring costs)  Enforcement costs: (ex: the costs associated with enforcing contracts) Transnational Institutions  General Agreement on Tariffs and Trade (GATT)  Signed in 1947  Sets out rules for non-discrimination, transparent procedures, and settlement of disputes in international trade  Sponsored successive rounds of international trade negotiations with a focus on the reduction of prevailing high tariffs  World Trade Organization (WTO)  Created in 1995 as a part of the Uruguay Round  Umbrella organization responsible for overseeing of multinational agreements  GATT is now a part of the WTO  WTO is responsible for:  General Agreement on Trade in Services (GATS)  Agreement on trade-related aspects of intellectual property rights (TRIPS)  Trade-related investment measures (TRIMS) Page 2 GMS 522  International Monetary Fund (IMF)  Conceived at the Bretton Woods in 1944  Plays a critical role in ensuring the stability and smooth operation of the global monetary system  Provides member countries with advice and technical assistance to guard against macroeconomic imbalances  Provides tempor
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