Teoretiese grondslae van die geldwese , Pretorla, 1948. Revision of the comparative cost theory. The difference between these two theories is subtle. The specific nature of these fields of study, their limitations and mutual adjustment have been covered by us l elsewhere. Unrealistic assumption of free trade: Another serious weakness of the dosctrine is that it assumes perfect and free world trade.
The main historical theories are called classical and are from the perspective of a country, or country-based. This is highly unrealistic because it is money costs and not labour costs that are the basis of national and international transactions of goods. To determine the similarity of countries, the Geert-Hofstede model is another tool that was developed to compare countries. However, the historical theories of each country are just as important as modern theories; they explain how nations expanded around the globe and built their wealth through trade. .
In the 1960s this was a useful theory to explain the manufacturing success of the United States. Revision of the comparative cost theory -- 3. Before publishing your Essay on this site, please read the following pages: 1. In contrast, another country may not have any useful absolute advantages. Viner, Studies in the Theory of International Trade , p. Unrealistic assumption of labour cost: The most severe criticism of the comparative advantage doctrine is that it is based on the labour theory of value.
This strategy is called The practice of imposing restrictions on imports and protecting domestic industry. People or entities trade because they believe that they benefit from the exchange. Her productivity and income will be highest if she specializes in the higher-paid legal services and hires the most qualified administrative assistant, who can type fast, although a little slower than Miranda. Some countries have a disproportionate benefit of some factors. In contrast, countries would import goods that required resources that were in short supply, but higher demand.
Product Life-Cycle Theory Back in the 1960s, Raymond Vernon developed the product life-cycle theory to explain the manufacturing success in America. By specialization, countries would generate efficiencies, because their labor force would become more skilled by doing the same tasks. Analysis viewed from the consumption sector -- 1. They may need or want the goods or services. Unlike the country-based theories, firm-based theories incorporate other product and service factors, including brand and customer loyalty, technology, and quality, into the understanding of trade flows. Unrealistic assumptions of full employment: Like all classical theories, the theory of comparative advantage is based on the assumption of full employment. State assumption of fixed proportions: The theory of comparative costs is based on the assumption that labour is used in the same fixed proportions in the production of all commodities.
This model uses six dimensions to compare countries: 1 Power Distance - is power in the country distributed unequally? Unequal price ratios -- V. In determining international trade patterns, the theory explains that some key factors are through network effects that happen in certain industries and substantial economies of scale. The product life cycle theory has been less able to explain current trade patterns where innovation and manufacturing occur around the world. Thus the assumption of full employment makes the theory unrealistic. International equilibrium at comparative cost differences. The objective of each country was to have a When the value of exports is greater than the value of imports.
They determined that the cost of any factor or resource was a function of supply and demand. In addition to these four main factors, Porter stated that chance and government also play a large role in some industries and countries. The theories covered in this chapter are simply that—theories. The British colonial empire was one of the more successful examples; it sought to increase its wealth by using raw materials from places ranging from what are now the Americas and India. He explains two cases in support of his argument: one, relating to a big country and a small country, and two, relating to a commodity of high value and low value. The E-mail message field is required. Porter believed that a sophisticated home market is critical to ensuring ongoing innovation, thereby creating a sustainable competitive advantage.
Global Strategic Rivalry Theory Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. Equal price ratios -- 2. Just as these theories have evolved over the past five hundred years, they will continue to change and adapt as new factors impact international trade. Labour as sole production factor. Our mission is to provide an online platform to help students to discuss anything and everything about Essay. In this firm-based theory, Linder suggested that companies first produce for domestic consumption.
What are the differences between these theories, and how did the theories evolve? Substitution of final products -- 1. Governments can, by their actions and policies, increase the competitiveness of firms and occasionally entire industries. Company X developed a highly innovative product and began exporting it. The The obstacles a new firm may face when trying to enter into an industry or new market. He, therefore, regards the theory of comparative advantage as cumbersome, unrealistic, and as a clumsy and dangerous tool of analysis. Although mercantilism is one of the oldest trade theories, it remains part of modern thinking. On the other hand, modern theories are useful and can help with international trade.