MAN 4602 Lecture Notes - Lecture 6: New Trade Theory, Absolute Advantage, Mercantilism
Document Summary
This chapter reviewed a number of theories that explain why it is beneficial for a country to engage in international trade and explained the pattern of international trade observed in the world economy. The theories of smith, ricardo, and heckscher-ohlin all make strong cases for unrestricted free trade. In contrast, the mercantilist doctrine and, to a lesser extent, the new trade theory can be interpreted to support government intervention to promote exports through subsidies and to limit imports through tariffs and quotas. In explaining the pattern of international trade, this chapter shows that, with the exception of mercantilism, which is silent on this issue, the different theories offer largely complementary explanations. Mercantilists argued that it was in a country"s best interests to run a balance-of-trade surplus: they viewed trade as a zero-sum game, in which one country"s gains cause losses for other countries.
