Research Proposal: International Trade Navigating the Seas

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International Trade

Navigating the seas of international business is complex. This paper explores the various international business frameworks as well as government regulations and trade alliances to help businesses understand which products they should import and export, how much to trade and with whom to trade.

The mercantilist theory states that countries should export more than they import so that they can receive the value of their trade surpluses in the form of gold (Daniels, Radebaugh, and Sullivan, 2007). According to these same authors, neo-mercantalism expands the reason to maintain a favorable balance of trade to include social or political objectives. Beginning with the works of Adam Smith, these trade theories have fallen out of vogue. Smith expressed the alternative view that wealth and trade was a non-zero-sum game where two countries involved in a transaction could each actually gain, because the exchanged items were more valuable to their new owners (Mercantilism). The belief that exports are good and imports are bad has been replaced with the idea that all trade -- whether it is import or export -- leads to economic growth, better jobs, and better health (Mercantilism today: how a dead philosophy comes back to life, 2003). Trade liberalization is increasing, but particular regions of production will have certain advantage over others and companies must consider how they stand within international frameworks.

Since Adam Smith's time, there are many theories describing the advantages under which countries should engage in International Trade. These are summarized below according to definitions provided by Daniels, Radebaugh, and Sullivan (2007).

The theory of absolute advantage means that country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it.

The theory of comparative advantage indicates that is beneficial for a country to specialize in goods that it produces most efficiently and to buy the goods that it produces less efficiently from other countries.

The theory of country size holds that countries with large land areas are more adopt to have varied climates and natural resources, and therefore they generally are more nearly self-sufficient than are smaller countries and that large countries' production and market centers are more likely to be located at a greater distance from other countries which raises transport costs.

According to the factor proportions theory, factors in relative abundance such as land, labor and capital are cheaper than factors in relative scarcity.

According to product life cycle theory, the production location for many products moves from one country to another depending on the stage in the product's life cycle. Companies will manufacture products first in the countries where they were researched and developed, but production will shift to emerging countries as the product matures and declines.

Lastly, the authors discuss competitive advantage in terms of Porter's diamond which considers factor conditions, related and supporting industries, and firm strategy, structure and rivalry.

Trade liberalization is allowing businesses to exploit their various advantages in international trade. Without a doubt this free trade has positively impacted both economic growth and physical capital investment. Data suggests that over the 1950 -- 98 period, those countries that liberalized their trade regimes experienced average annual growth rates that were about 1.5 percentage points higher than before liberalization (Wacziarg and Welch, 2008). Further, post liberalization investment rates rose 1.5 to 2.0 percentage points and liberalization raised the average trade to GDP ratio by roughly 5 percentage points, indicating that trade policy liberalization raised the level of openness of liberalizers (Wacziarg and Welch, 2008).

Even though trade liberalization is beneficial, governments… [END OF PREVIEW]

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International Trade Navigating the Seas.  (2009, September 25).  Retrieved September 20, 2019, from https://www.essaytown.com/subjects/paper/international-trade-navigating-seas/488170

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"International Trade Navigating the Seas."  Essaytown.com.  September 25, 2009.  Accessed September 20, 2019.
https://www.essaytown.com/subjects/paper/international-trade-navigating-seas/488170.