IBUS 462 Lecture Notes - Lecture 3: New Trade Theory, Bertil Ohlin, Paul Krugman
5 Dec 2018
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Document Summary
Mercantilism: (16th and 17th century) advocated that countries should encourage exports and discourage imports. Absolute advantage (adam smith 1776) explains why free trade is good. Free trade government does not attempt to influence: what its citizens can buy from another country or, what they can produce and sell to another country trade through either quotas or duties. Eli heckster and bertil ohlin: the hos theory: the benefit of trade. The great strength of those theories is that they identify the specific benefits of international trade. (icelander: orange/fish). The theories confirm our common sense notion, however it goes beyond by showing it is beneficial for a country to engage in international trade even for products it is able to product itself. This concept is sometimes difficult to grasp for nationalist consumer. The gain of buying from other nations arise because international trade allows a country to specialize in the manufacture of product or services that can be produced most efficiently.
