Chapter 5-Mercantilism-nations accumulate financial wealth by encouraging exports and discouraging imports.---3 Pillars -maintain trade surplus-Gov't intervention- Exploit colonies. Flaws-world trade is a zero sum game- Limits colonies market potential
-Absolute Advantage-Ablilty of a nation to produce a good more efficiently than any other nation…Adam Smith
-Comparative Advantage- Ability to produce a good more efficiently than it does any other goods, but may not, necessarily, be the most efficient compared to any other nation
-Factors Proportion Theory- Countries that produce and export goods that require resources that are abundant and import goods that require resources in short supply
-Trade Deficit- when the value of a country's imports is greater than the value of its exports
-Trade Surplus- When a value of a nations exports is greater than the value of its imports
- Porter's Diamond-Nation's competitiveness in an industry depends on the industry's capacity to innovate and upgrade, which in turn depends on four main determinants…plus government and chance. Country Factor Endowements- Domestic Demand Conditions- related & supporting industries- Firms strategy, Structure, &rivalry}
Chapter 6-Support for infant industries- The national income increases and Global industries are created.
-US media and goods are usually the main culprit, Nations will block imports that are shown to be harmful, and it is as a result of increased Globalization
-Subsides- Financial assistances in the form of many ways. Export Tariffs, Transit Tariffs, Import Tariffs}
-Quotas-Restriction on the amount of a good that can enter or leave a country during a certain period of time
- Tariffs-Gov't tax levied on a product as it enters or leaves a country
-Foreign Trade Zones-Designated geographic region through which merchandise is allowed to pass with lower customs duties(taxes) and/or fewer customs procedures
Chapter 7-Greenfield- whole subsidiary(Plain Field)
-Reasons why home countries discourage FDI- $ leaving the country, It eliminates export markets, and eliminates domestic jobs}
-Nomura-Lehman lost $5.91 million in 3 months. Short term profit, Nomura= low wages/ higher job security, Lehman= higher wages/ low job security}
Daimler- Chrsler Failure, Bought for $38 B in 1998 sold $7.4 B in 2007, Main reason the culture of the 2 companies were different}
Tata- jaguar success, Left manegment alone but had too make there sales #}
Types of Mergers and FDI=Vertical-(Greenfield) moves up and down value chain
Horizontal-(M&A) Replicates function performed in home country to host country
-Common reasons of faoures of M&A-Culture Clashes, Hubris(extreme pride), Lack of due Diligence}
Chapter 8-Forms of regional intergration- Lowest to greatest(1. Free Trade Area-(NAFTA) no tariffs 2. Customs Union- no tariffs and same external trade policy w/ all members 3. Common Market- same as FTA and CU + increase flow capital & people 4. Economic Union-(EU) Same as above 3 + currency Euro 5. Political Union-(Soviet Union)
Free trade area removes all barriers to trade between members with each nation determining its own barriers against nonmembers. Customs union adds the requirement that all members set a common trade policy against nonmembers. Common market adds the free movement of labor and capital and sets a common trade policy against nonmembers. Economic union requires members to harmonize their tax, monetary, and fiscal policies, create a single currency. Political union coordinate aspects of members economic and political systems
-Maastricht Treaty- 1993 went into effect. Single currency, Set up monetary and fiscal targets for countries that wished to take part in monetary union, & political union of the member nations- including development of a common foreign and defense policy and common citizenship.
- Euro- removes exchange rate risk for business deal inside EU, Removes transaction costs by eliminating converting costs, it makes prices more transparent, making it difficult to charge different prices in adjoining markets.
1.Mercantilism is when nations accumulate financial wealth by encouraging exports and discouraging imports. There are 3 pillars to mercantilism. They are to maintain trade surplus, Government intervention, and colonialism. Trade surplus is when a nations export is greater than the value of its imports. Government intervention is when the government intervenes in international trade in order to maintain a trade surplus. In Mercantilism they would acquire colonies around the world to serve as a source of inexpensive raw materials and as a market for higher priced goods.
The major flaws of mercantilism were they believed the world trade was a zero-sum game. Which means that the worlds wealth was limited and the only way to increase its share would