GMS 724 Chapter Notes - Chapter 5: Neomercantilism, Absolute Advantage, Comparative Advantage

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Factor mobility: movement of capital, technology, and people. Countries question what and who they should trade with. Laissez-faire approach: allow market forces to determine trading relations, free trade theories - absolute advantage and comparative advantage. Intervention approach: mercantilism and neomercantilism, prescribe a large amount of governmental intervention in trade. Theories explore: country size, factor proportions, country similarity. Theories explore trade competitiveness: product life cycle, diamond of national advantage. A country"s competitiveness depends on the quality and quantity of production factors: labor, land, capital. Mercantilism holds that a country should export more than they import: maintain a favourable balance of trade or trade surplus, avoid an unfavourable balance of trade or trade deficit. In order to do this governments restricted imports and subsidized production that otherwise could not compete in domestic or export markets. Neomercantilism run an export surplus to achieve social or political objectives. Two theories that support free trade: absolute and comparative advantage theory.

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