Questions On International Trade Theory

1332 WordsMar 12, 20176 Pages
Student name: Fangyu Zhou Student number: 201109990 Module name: International business Module code: MKIB 225 Essay question: Why do businesses internationalize? Compare and contrast the various “standard” theories . Word count: 1051 Why does business internationalize? With the development of international business, countries with the purpose of increasing the variety of local products had been trying best for decades to trade with other nations. Furthermore, international trade theories were developed to explain the benefit nations can get from utilizing free trade pattern and participating in the multilateral trade with opening up strategy by eliminating import control, export support and other types of…show more content…
As a result, every country in the world, including the weakness country, it can benefit from international trade by comparative advantage (Neary, 2012). For example, even both the productivity of corn and rice in Ghana is lower than South Korea, but Ghana still can gain the rice from trade by exporting which is comparatively more efficient in production than the corn from South Korea, while importing corn with relatively lower productivity. According to Redding and Vera-Martin (2002) provided, different from technology-based comparative advantage, Heckscher-Ohlin supported that comparative advantage arises from the difference in endowed resources such as land, labor, and capital, rather than the difference in productivity. For example, Saudi Arabia has long been a substantial exporter of oil, but it is an importer of fruits, reflecting its relative local abundance of oil field while the local scarcity of land on planting fruit. Moreover, factor endowment theory has been subjected to numerous tests, but the thing which is some situations cannot be accounted. Such as the United State who is abundant in capital imports more capital-intensive goods than its export of that (Redding, & Vera-Martin, 2002). The Leontief Paradox exists mostly because that Heckscher-Ohlin developed the theory under the assumption that technologies are the same over the world. However, the validity of the factor endowment theory is not affected,
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