Chapter Six provides a conceptual foundation for the exploration of the international trade process.  First, it examines the basic theories of mercantilism, absolute advantage, and comparative advantage.  Then it explores patterns of trade in light of the theories of country size, factor proportions, and country similarity.  It also considers the role of distance and explains the relevance of Product Life Cycle Theory and Porter’s Diamond of national competitive advantage.  The chapter concludes with a discussion of factor mobility and its relationship to the international trade process.

MEDIA

•      To understand theories of why countries should trade

•      To comprehend how global efficiency can be increased through free trade

•      To become familiar with factors affecting countries’ trade patterns

•      To realize why countries’ export capabilities are dynamic 

•      To discern why the production factors of labor and capital move internationally

•      To grasp the relationship between foreign trade and international factor mobility     

TERMINOLOGY

strategic trade policy, p.201

       interventionist trade theories, p.203

       mercantilism, p.203

       favorable balance of trade, p.204

       unfavorable balance of trade,p.204

       neomercantilism, p.204

       free trade, p.205

       invisible hand, p.205

       absolute advantage, p.205

       natural advantage, p.205

       acquired advantage, p.206

       production possibilities curve, p.206

       comparative advantage, p.207

       statics, p.210        

       dynamics, p.210

       nontradable products, p.211

       theory of country size, p.211

       factor proportions theory, p.212

       country similarity theory, p.215

       product life cycle theory, p.217

       Porter diamond, p.219

       demand conditions, p.219

       factor conditions, p.219

       factor mobility, p.223

       brain drain, p.224

       substitution, p.225

       complementarity, p.226