Introduction to International Business Essay Example | Topics and Well Written Essays - 1250 words

Introduction to International Business - Essay ExampleInternational sh ar and world output Free international trade facilitates the countries to specialize in the manufacture of the different goods based on the comparative cost advantage and the economies of scale due to various factors such as flourishing climatic conditions, availability of raw materials, manpower and geographical location. The markets would be efficient on the global scale if there is free trade and there are no restrictions placed by the governments on the movement of goods by way of customs duties, taxes and quotas. When the world is moving towards this ideal attitude, on its way the efficiency in the global markets leave alone result into increased world output, depending upon the progress. However, various factors such as the need for protecting the agriculture and local industries, the goal of self-sufficiency, balance of payments situation and phase of the economic maturation of the country dictates t he policies to be pursued by the governments. The world output is related to international trade, and for example during the times of depression, trade will contract on account of reduction in expenditure in general by the consumers, consequently the world output and the revival in consumer spending will emerge when the consumer confidence increases once the recessionary pressures are over. However, the disadvantages due to poor infrastructure have an adverse impact on the economic development in the developing and the underdeveloped countries, and consequently on the international trade. Rich (1992, P. 10) states that there is the problem of the emerging and developing countries who confront the advanced countries with the disadvantage of missing sufficientindustry and infrastructure to compete, yet competition is the means by whichthey can develop their industrial basis and gain the technology for raising theirstandards of living. 2. bulky pattern of international trade underp in There are several deterrent examples for predicting the patterns of trade. For example, comparative advantage which leads to specialization is based on the scheme propounded by David Recardo. However, this Ricardian model of comparative advantage could be neutralized by several factors such as transportation costs and trade costs. Also, the increase in one or more of the components of the cost over a period of time could act as a barrier. Moreover, monetary policies pursued by the government takes into account the factors such as the overall balance of payment position, interest rates and inflation which may have a bearing on the comparative advantage (or disadvantage). This theory is also criticized on account of its assumption about the labor as the critical input. Also, the comparative advantage could be vitiated by the protectionist measures of the other countries. Theories such as New Trade Theory and Gravity model of trade are based on empirical analysis compared to the e arlier theoretical models. The day-and-night shift in comparative advantage with reference to various products makes the international trade very dynamic and the pattern and thebasis for the balance of trade in goods and servicesundergo changes over the period of time. Proudman and Redding (1998, p. 19) state Theoretical models of growth and trade suggest that patterns of international specialisation are inherently dynamic and originate endogenously over time. Economic theory pin-points some forces that leads to