The theories of both Michael Porter and Gary Hamel have changed that way organisations strive for competitive advantage. Their ideas on competitive strategy and management innovation are now seen as essential transformational tools for businesses looking to deliver profitable growth for its stakeholders. Michael E. Porter is a leading authority on competitive strategy‚ the competitiveness and economic development of nations‚ states‚ and regions‚ and the application of competitive principles to
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Heckscher-Ohlin theory differs from Ricardian theory in explaining international trade patterns. This paper will also explain how the theory demonstrates how trade affects the distribution of income within trading partners. Then this paper will discuss the Leontief paradox challenge the overall applicability of the factor-endowment model. According to Staffan Linder‚ there are two explanations of international trade patterns—one for manufacturers and another for primary (agricultural) goods. Tariff Types The
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engineers‚ technicians and it is rather well technologically developed country‚ it will be more advantageous to export goods‚ which require for their production those abundant factors – for ex. computers‚ IT etc. 2. Criticism on the H-O model & Leontief Paradox There is much criticism upon that model; therefore I’m going to state the most important of it here: * The little predictive power of that model‚ which was a critic by Bernstein and Weinstein‚ who claimed that the H-O model and its factor
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invalidated by the demand reversal Critical evaluation of the HECKSCHER OHLIN theorem In the area of pure theory of international trade‚ the HECKSCHER OHLIN model occupies a very prestigious position. The very fact that many known Economists like Leontief‚ Walters‚ Minhas and others have tried to test the empirical validity of the HECKSCHER OHLIN theorem using econometric models‚ stands as a testimony of the prestige of the model. The
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Heckscher-Ohlin Theory Factor Endowment Theory Factor Price Equalization Sources of Comparative Advantage • Factor-Endowment (Heckscher-Ohlin) Theory – Explains comparative advantage by differences in relative national supply conditions – Key determinant: Resource endowments – Assumptions: • • • • Perfect competition Same demand conditions Uniform quality factor inputs Same technology used Factor Endowments • Relative price levels differ among nations because: – Nations have different
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similar trade patterns. The wider discipline of trade theory within which we find the field of input-output economics consists of four broader areas. Input-output economics‚ based on the Heckscher-Ohlin theory and defined by the findings of Wassily Leontief forms the biggest most well known part. The Ricardian model‚ which is the next most important model to that on which input-output economics is based‚ will be described in some depth for the sake of comparison and to give an alternative insight into
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What are the Classical Country-Based Trade Theories? This was one of the first theories of international trade. They focus on the individual country in examining patterns of imports and exports. These theories are useful in describing trade for commodities. This is because they are standardized and undifferentiated type of goods and services that focus mainly on price. Mercantilism This theory was developed in the sixteenth century and states that a country’s wealth is determined by
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countries will export those goods that make intensive use of locally abundant factors and will import goods that make intensive use of factors that are locally scarce. Empirical problems with the H-O model‚ such as the Leontief paradox‚ were noted in empirical tests by Wassily Leontief who found that the United States tended to export labor-intensive goods despite having an abundance of capital. The H-O model makes the following core assumptions: 1. Labor and capital flow freely between sectors
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Week 2 (7) Trade and Comparative Advantage Chapter 3 Problem set Exercise 2.1 Assume there are just two countries in the world‚ i.e. the European Union (EU) and the Rest of the World (RW). Both countries produce and consume 2 products: bicycles (b) and apples (a). Per bike‚ the EU puts in 3 hours of labour while the RW puts in 5. Per ton of apples‚ the EU needs 2 hours v. the RW 1 hour of labour. A further given is that the EU has 2400 hours of labour available v. RW 1600. The world
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Chapter 5 The Theory of Trade and Investment 1 Learning Objectives To understand the traditional arguments of how and why international trade improves the welfare of all countries To review the history and compare the implications of trade theory from the original work of Adam Smith to the contemporary theories of Michael Porter To examine the criticisms of classical trade theory and examine alternative viewpoints of which business and economic forces determine trade patterns
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