ADM 3318 Lecture Notes - Lecture 2: Leontief Paradox, Factor Endowment, Absolute Advantage
4 Oct 2016
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Document Summary
Classical trade theories: focused on concepts of mercantilism, absolute advantage, and comparative advantage. Modern trade theories: focused on concepts of product life cycle, strategic trade, and national competitive advantage. Theory of mercantilism: the wealth of the world (measured in gold and silver) was fixed, and that a nation that exported more and imported less would enjoy net inflows of gold and silver and thus is richer. Protectionism: gov"t should actively protect domestic industries from imports and vigorously promote exports. Factor endowments: extent to which different countries possess various factors (labour, land, and technology) Factor endowment theory (heckscher-ohlin theory): the proposition that nations will develop comparative advantages based on their locally abundant factors. Resource mobility: assumption that a resources can be removed from one industry to another. Free trade: free market forces should determine how much to trade with little/no gov"t intervention. Theory of absolute advantage: economic advantage one nation enjoys that is absolutely superior to other nations.
