International Business

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Date Submitted: 06/30/2010 08:52 PM

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countries make decisions, officials enact policies to achieve the desired results. Once These policies have an impact on business because they affect which countries can producegiven products more efficiently and whether countries will permit imports to compete against their own domestically produced goods and services. Some countries takea more laissez-faire approach, one that allows market forces to determine trading relations ecause they believe government programs lead to inefficiency. Whether taking b interventionistor laissez-faiTe approaches, countries rely on trade theories to guide policy development. Figure 6.1 shows that trade in goods and services and the movement of productionfactors are means by which countries are linked internationally. In this chapter, we look first at trade theories that address the complex issue of whethera government should intervene directly to affect a country's trade with other countriesand, if so, how to go about what can be a fairly tricky task. In effect, these theories cover opposite ends of the spectrum. At one end are mercantilism and neomercantilism, which prescribe a great deal of government intervention to affect trade. Atthe other end are free-trade theories (absolute advantage and comparative advantage), which prescribe that governments should not intervene directly to affect trade.

Compare Figure 6.1 with Figure 1.1, which outlines certain conditions that may affect a firm's operations when it decides to do business on an international scale. Here the graphic focuses in on operational adjustments that a company faces when it takes specific strategic actions to go international-namely, to trade and transfer means of production.

Fromthere, we examine theories that help explain trade patterns (how much countries dependon trade, what products they trade, and with whom they primarily trade). These include theories of country size, factor...