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International Trade Theories by Mind Map: International Trade Theories
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International Trade Theories

Heckscher Ohlin Theory

H-O Theorem

Factor Endowment, Comparative Advantage, Terms of Trade

Export - Abundant Factor

Import- Scarce/expensive factor

Factor-Price Equalization

International Trade and Specialization

Equalize Relative & Absolute Returns

Homogenous Factors

Stopler Samuelson, Inc in Relative price of comodity, Inc. Returns on intensively used factor, Eg.Labour Abundant, Price of labour inc., Returns on Cap. falls

In each nation, Relatively abundant source -expensive, Relatively scarce source - cheaper

Implications, Worsened Inequality, Devpd Capital Abundant, Devpn Labour Abundant, True if, Assumptions of H-O hold, Stop-Sam is only force in driving changes in inequality

Empirical Test - Leontief's Paradox

1951 Tests

Prd. Patterns of trade did not fit the conclusions of H-O.

US Imports - Capital Intensive

Assumptions, 2 factor world - capital and labour, Consistent Technology b/w nations (w.p), Perfect Mobility b/w factors of production w.p. sector specific factors

Current tests built on Multiple Sector- specific factors

Product Life Cycle

Development & Intro

Advanced nation Monopoly

Sole Exporter


Widespread-Techno familiarity Production begins in other nations

Standard Comp. Adv. framework


Introducer loses Comp. Adv

Becomes importer

Product Differentiation

Sim. products same industry/ trade group

Intra-industry trade


Producers-Economy of Scale

Economy of Scale

Productive relationships

Characterized by inc.returns to scale

Doubling of input more than doubles output

Large scale productions

Lower p.u. cost

Cost Adv. for exports

Transportation Cost

Def. Incurred in Transit



Loading /Unloading

Insurance & Interest

Invalidate Comparative Advantage

High Costs Restrict Trade

Eg. Perishable Goods


Geographically close nations


Environmental Standards

Acceptable level of Pollution


Inc. Cost

Red. Comp. Adv.


Vice Versa

Race to bottom

Inclusions of envi legislations along with red. to barriers of trade.