international business lecture 5 trade theories trends and policies

International Business lecture 5

INTERNATIONAL Trade; Theories, Trends and
Policies

Industry level arguments
 National Defense argument
 Infant industry argument
 Maintenance of Existing Jobs
 Strategic Trade Theory

National Defense Argument
 A country must be self sufficient in critical raw material,
technology and machinery so as to be not vulnerable to
foreign threats.
 Appeals to general public
 Protect the steel, machinery tools industry and merchant
marines.

Infant Industry Argument
 Short run cost and Long run profit.
 Powerful economic development strategy.


Maintenance of existing jobs
 The imports form low wage countries threaten jobs in high
wage countries.
 Distributional effects of trade-
o Long run effect
o Key role of economies of scale more than factor
endowments.

Strategic Trade Theory
 Trade argument for protection
 Strategic trade policies are protectionist trade policies to
influence the growth of preferred domestic industries.

Korean Growth Stages
1960’s- light industries
 Deter import
 Foster export oriented light industry

1970’s Heavy industry
 Expand technological development