Trade Theory

1. Business and Economics
WEEK 4:
Theories of International
Trade and Investment

2. Objectives
 Group 1 Presentation
 20 min, 10 min QnA
 Quiz
 Tutorial

3. Group Presentation
 Group 1: Culture in International Business
How does religion influence the values and norms found within a given
country’s culture? What implications are raised by religion for a firm
seeking to internationalise?
How does social structure influence the values and norms found within a
given country’s culture? What implications are raised by social structure
for a firm seeking to internationalise?
How does language influence the values and norms found within a given
country’s culture? What implications are raised by language for a firm
seeking to internationalise?

4. Quiz time
 TWO TEAMS
 10 POINTS FOR RIGHT ANSWER
 5 POINTS FOR PASSED ANSWERS
 Prizes 

5. QUESTION 1
Mercantilism is a bankrupt
theory that has no place in the
modern world. Discuss.

6.  Mercantilism - a country should maintain a trade surplus,
even if that means that imports are limited by government
intervention.
 Bankrupt theory because:
– Inconsistent with the general notion of globalization.
• Eventually, a country will find it difficult to export if
it imposes oppressive quotas and tariffs on its
imports.
– Consumers in the mercantilist country suffer.
• Denied access to either “cheaper” or more
“sophisticated” goods from other countries.

7. QUESTION 2
Is free trade fair? Discuss.

8.  Trade theory suggests that specialization
and free trade benefits all countries.
 However, a case can be made in some
situations for imposing trade barriers. E.g.:
– Infant industry argument
– National security
– Greece?

9. QUESTION 3
What are the potential costs of
adopting a free trade regime?
Do you think governments
should do anything to reduce
these costs? What?

10. Job loss
Government should:
–provide retraining programs OR
–Do nothing, it will all come out in
the wash

11. THE RISE OF BANGLADESH’S
TEXTILE TRADE (PG. 206)
CLOSING CASE:

12. Why was the shift to a free trade
regime in the textile industry good
for Bangladesh?
QUESTION 1

13.  Until 2005, Bangladesh’s opportunities in the
developed nations were governed by a quota
system.
 Introduction of free trade policies enabled
Bangladesh to increase its exports.
 Competitive advantage in the production of textiles.
– low cost, productive labour force.
– strong network of supporting industries.
 Also, attracted Western importers looking to
diversify their supplier base.

14. Who benefits when retailers in the
United States source textiles from
low wage countries such as
Bangladesh? Who might lose? Do
the gains outweigh the losses?
QUESTION 2

15. BANGLADESH
low cost, lower
price
competitive
advantage
US
Higher price -
fewer garments
purchased locally
Possible job loss

16. What international trade theory,
or theories, best explain the rise
of Bangladesh as a textile
exporting powerhouse?
QUESTION 3

17.  Exporting powerhouse:
– Relatively low wages.
– Investments in boosting productivity
levels.
– Network of supporting industries.
 Theory of comparative advantage
 Porter’s theory of competitive advantage

18. How secure is Bangladesh’s
textile industry from foreign
competition? What factors could
ultimately lead to a decline?
QUESTION 4

19.  Bangladesh is attractive due to:
– low cost garments
– the opportunity for importers to diversify their supply base
(Importers do not want to solely rely on China and see
Bangladesh as an attractive alternative to hedge risks).
 However, their infrastructure could prove to be problematic for
its exporters.
– If importers find that infrastructure problems disrupt their
supplies, they could begin to look for new source
countries.
– Bangladesh should make the necessary investments to
avoid any disruptions in the industry.

20. Revision Quiz
 According to Mercantilism, what should a country try to
maintain?
 True or False: According to Free trade Theory, Government
should control imports.
 What is Michael Porters trade theory called?
 List two advantages of Free trade theory.

21. THE REGULATORY
FRAMEWORK
NEXT WEEK: