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Flaws Of Mercantailism
According to Davis Hume, in the Long run, no country could sustain a surplus on the balance of trade. Government imports restrictions are paid by consumers in the form of higher taxes. Government Subsidies of exports of certain industries are paid by tax payers in form of higher taxes.
India
6W
US Exchanges, 6 bushels W = 5 yard C, US gains 1 yard C, or man hour India Exchanges, 5 yard C = 6 bushels W, India gains 5 bushel W, or 5 man hours Both countries gain
1 Unit of Wine
1 Unit of Cloth
Portugal England
80 120
90 100
If no trade, in England
120 hours = 1 W 100 hours = 1 C 1 wine will cost 120/100 or 1.2 cloth
In Portugal
80 hours = 1 W 90 hours = 1 C 1 wine will cost 80/90 or 0.89 cloth
1 Unit of Wine
1 Unit of Cloth
Portugal
80/90 = 8/9
90/80 = 9/8
England
120/100 = 12/10
100/120 = 10/12
1.13 0.83
1.13 0.83
In international market, if 1Wine exchanges for 1 cloth, advantageous for England. England export cloth and import wine, because, in the absence of trade, she has to give up 1.2 Cloth for 1 Wine and save 0.2 cloth.
1.13 0.83
Without trade, Portugal has to give up 1.13 wine to get 1 unit cloth. Portugal export wine and import cloth. Now she can make 1 Wine by 80 hours of labour and exchange 1Wine for 1Cloth. Save 10 labour. Both nations gains from trade than isolation
United States
Exports
Other Advanced Countries
Imports
Exports
Imports
Developing Countries
Exports
Imports
New Product Maturing Product Standardized Product
production consumption
Some argue that it generates government intervention and strategic trade policy.
Porters Diamond
(Harvard Business School, 1990)
The Competitive Advantage of Nations. Looked at 100 industries in 10 nations. Thought existing theories didnt go far enough. Question: Why does a nation achieve international success in a particular industry?
Porters Diamond
Determinants of National Competitive Advantage
Firm Strategy, Structure and Rivalry
Factor Endowments
Demand Conditions
Porters Diamond
Determinants of National Competitive Advantage
FACTOR CONDITIONS: Porter differentiated between Basic factors & Advanced factors. Basic Factors: Land, Labor, Capital, Natural resources, etc. Advanced Factors: Technology, Infrastructure, Education level of work force. Porter said, Favorable Factor conditions leads to favorable competitive conditions in the markets.
Porters Diamond
Determinants of National Competitive Advantage
DEMAND CONDITIONS:
This represents the Consumer Demand, If the consumers are well aware then the firm has to develop high quality product & firm can compete internationally with good quality product & vice versa.
Porters Diamond
Determinants of National Competitive Advantage
RELATED & SUPPORTING INDUSTRY: These are the industries which gives input to the firms & have spill over effect. If the input produced by supporting Industry is superior i.e. of good quality, then the final product is also of good quality & the firm can compete internationally.
Porters Diamond
Determinants of National Competitive Advantage
FIRMS STRATEGY, STRUCTURE & RIVALRY: Different Countries have different ideologies. The more is the rivalry, the more pressure to produce good product & firm can compete internationally with good quality product. Therefore, Rivalry is important to develop world class product.
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