Business Theories

INTERNATIONAL SUPPLY CHAIN MANAGEMENT

Business Theories

Name: Wilson Dueñas. Teacher: Yolanda Liliana Bejarano Muñoz.

20/10/2023

Bilbe.

07. Monopolistic Competition Model

04. Absolute Advantage Theory

01. Cover

05. Heckscher-Ohlin Model

02. Introduction

08. Gravity Model

03. Theory of Comparative Advantage

06. Product Life Cycle Model

09. Conclusion

Introduction.

International trade is an essential aspect of the global economy, and trade theories are tools that economists use to understand and analyze trade patterns between countries. Throughout history, several theories have been developed that explain why countries engage in trade, how they benefit from it, and what are the determining factors in the exchange of goods and services. In this report, some of the most influential trade theories will be examined.

Theory of Comparative Advantage

The theory of comparative advantage, developed by David Ricardo in 1817, is one of the most fundamental trade theories. According to this theory, countries benefit from international trade by specializing in the production of goods in which they have a comparative advantage, i.e., in which they are relatively more efficient in terms of production costs. Trade allows countries to acquire goods that they cannot produce efficiently on their own, resulting in a more efficient allocation of resources at the global level.

Absolute Advantage Theory

The theory of absolute advantage, proposed by Adam Smith in his work "The Wealth of Nations" in 1776, suggests that countries should specialize in the production of goods in which they are absolutely more efficient than other countries. Smith argues that this will lead to international trade beneficial to all nations involved.

Heckscher-Ohlin Model

The Heckscher-Ohlin model, developed by Eli Heckscher and Bertil Ohlin in the 1930s, is based on the idea that countries trade according to their factor endowments. According to this model, countries will export goods that make abundant use of the factors of production that they have in excess and that are relatively cheap in their economy, while they will import goods that use scarce and expensive factors in their economy.

Product Life Cycle Model.

Developed by Raymond Vernon in the 1960s, the Product Life Cycle Model argues that products go through different stages of their life cycle, from innovation to maturity. According to this theory, production of new products tends to start in the country of origin and then expands to other countries as products mature. This may explain trade patterns in products at different stages of their life cycle.

Monopolistic Competition Model

This model, developed by Paul Krugman in the 1970s, is based on the idea that firms compete in a market of monopolistic competition, meaning that they have some market power due to product differentiation. International trade, according to this model, occurs because firms seek access to foreign markets and expand their customer base.

Gravity Model

The Gravity Model, widely used in international economics, suggests that the volume of trade between two countries is directly proportional to their respective economies and inversely proportional to the geographical distance between them. This model is based on empirical observations and helps predict trade patterns.

Conclusion

Específicos

Trade theories have evolved over time to better understand why countries trade, how they benefit and what are the determining factors in the exchange of goods and services. Each theory offers a different perspective on international trade and contributes to the understanding of global economic dynamics. Importantly, these theories are not mutually exclusive and are often applied in combination to analyze specific trade situations.

In today's economy, international trade is a crucial element that influences the economic welfare of countries and their integration into the world economy. The study and application of these theories remain critical for economists and policymakers as they address issues related to global trade.