Therefore the country similarity theory consists of the value that most trade in manufactured goods should be between nations with similar per capita income, and that intra industry trade in manufactured goods should be common (Mahoney, Trig, Griffin, Pustay, 1998). Finally, with respect to taxation, the mercantilist saw taxes as a form of social contract, in that people should be taxed based on the benefits they took from the state. Mercantilism Mercantilism was a sixteenth-century economic philosophy that maintained that a countrys wealth was measured by its holdings of gold and silver (Mahoney, Trigg, Griffin, & Pustay, 1998). The reason that this is threatening for our company is that this other nation may have a competitive advantage and this places stress on our market share. Many economists attempted to disprove the Heckscher-Ohlin theory. The producer who has the smaller opportunity cost of producing a good is said to have a comparative advantage in producing that good (Gans, King, & Mankiw, 1999). Foreign Competition in exports markets: This is a threatening stage for the company. This recquired the countries to maximise the difference between its exports and imports by promoting exports and discouraging imports. Modern supporters of these policies are known as neo-mercantilists, or protectionists (Mahoney, Trigg, Griffin, & Pustay, 1998). Mercantilism was the economic philosophy underlying early European colonial policy. Cloudflare Ray ID: 5e3c38bbacf89aaa During Mercantilist time, there was a rise in the growth of commerce laws and wage systems which lead to greater control and presence of money. Domestic manufacturers threatened by foreign imports endorsed mercantilist trade policies, such as those imposing tariffs or quotas, which protected them from foreign competition (Mahoney, Trigg, Griffin, & Pustay, 1998). Your IP: 22.214.171.124 The pattern of rivalry at home also has a profound role to play in the process of innovation and the ultimate prospects for international success (Porter, 1980). Global Strategic Rivalry Theory The Global Strategic Rivalry theory was developed in the 1980s as a means to ‘examine the impact on trade flows arising from global strategic rivalry between Multi National Corporations.’ (Mahoney, et al 1998). The theory of absolute advantage, suggests that a country should export those goods and services for which it is more productive than other countries, and import those goods and services for which other countries are more productive than it is (Mahoney, Trigg, Griffin, & Pustay, 1998). Factors of production are nothing more than the inputs to compete in any industry, such as Labor, arable land, natural resources, capital, and infrastructure. For the nation to be able to obtain treasure, a favorable balance of foreign trade was enabled. Furthermore, an economic policy that involves monetary manipulation and attempts to manage the economy via government deficit spending is mercantilist and thus owes credit to the mercantilist thinkers for its origin. Finally, other nations were encouraged to trade with them by earning respect through strong defense forces and respectable trade practices. Factor Endowments and the Heckscher-Ohlin theory take this one step further by analysing the effect that international trade has on the earnings of factors of production in the two trading nations (Salvatore,1999). Various thought processes like that of Aristotle and the Physiocrats have all contributed to the holistic development of this discipline. The dominant economic philosophy during the late Middle Ages and lasting through the mid-18th century. STUDY. Thus, high trade surplus is enabled. The logic was transparent to sixteenth-century policy makers-if foreigners buy more goods from you than you buy from them, then the foreigners have to pay you the difference in gold and silver, enabling you to amass more treasure.
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