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International trade is the exchange of capital, goods, and services across international borders or territories [1] because there is a need or want of goods or services. [2] See: World economy .) In most countries, such trade represents a significant share of gross domestic product (GDP).
Throughout his academic life, he developed theories that sought to explain foreign direct investment (FDI) and why firms become multinational. There were three phases of internationalization according to Hymer's work. [7] In this thesis, the author departs from neoclassical theory and opens up a new area of international production.
Prior to Stephen Hymer’s doctoral thesis, The International Operations of National Firms: A Study of foreign direct Investment, theories did not adequately explain why firms engaged in foreign operations. Hymer started his research by analyzing the motivations behind foreign investment of US corporations in other countries.
A good can be produced at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade. [1] Comparative advantage describes the economic reality of the gains from trade for individuals, firms, or nations, which arise from differences in their factor endowments or technological progress. [2]
The latter predicts only inter-industry specialisation and trade". [1] However, this is far from the case. The traditional model of trade were set out by the model of David Ricardo and the Heckscher–Ohlin model, which tried to explain the occurrence of international trade.
The Product Life Cycle Theory is an economic theory that was developed by Raymond Vernon in response to the failure of the Heckscher–Ohlin model to explain the observed pattern of international trade. The theory suggests that early in a product's life-cycle all the parts and labor associated with that product come from the area where it was ...
In other words, not all of a firm's customers would leave for other products if the firm raised its prices. 2. This model dismisses the issue of interdependence when a firm sets its price. The firm will act as if it were a monopoly regarding the price it sets, not considering the potential responses from its competitors. The justification is ...
The gravity model estimates the pattern of international trade. While the model’s basic form consists of factors that have more to do with geography and spatiality, the gravity model has been used to test hypotheses rooted in purer economic theories of trade as well. One such theory predicts that trade will be based on relative factor abundances.