Business and Economics

WEEK 4:

Theories of International

Trade and Investment

Objectives

Group 1 Presentation

20 min, 10 min QnA

Quiz

Tutorial

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?

Quiz time

TWO TEAMS

10 POINTS FOR RIGHT ANSWER

5 POINTS FOR PASSED ANSWERS

Prizes

QUESTION 1

Mercantilism is a bankrupt

theory that has no place in the

modern world. Discuss.

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.

QUESTION 2

Is free trade fair? Discuss.

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?

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?

Job loss

Government should:

–provide retraining programs OR

–Do nothing, it will all come out in

the wash

THE RISE OF BANGLADESH’S

TEXTILE TRADE (PG. 206)

CLOSING CASE:

Why was the shift to a free trade

regime in the textile industry good

for Bangladesh?

QUESTION 1

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.

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

BANGLADESH

low cost, lower

price

competitive

advantage

US

Higher price -

fewer garments

purchased locally

Possible job loss

What international trade theory,

or theories, best explain the rise

of Bangladesh as a textile

exporting powerhouse?

QUESTION 3

Exporting powerhouse:

– Relatively low wages.

– Investments in boosting productivity

levels.

– Network of supporting industries.

Theory of comparative advantage

Porter’s theory of competitive advantage

How secure is Bangladesh’s

textile industry from foreign

competition? What factors could

ultimately lead to a decline?

QUESTION 4

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.

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.

THE REGULATORY

FRAMEWORK

NEXT WEEK: