Both the factor-proportions theory and the country similarity theory address patterns of trade,…

Both the factor-proportions theory and the country similarity theory address patterns of trade, i.e. partner nations. Compare and contrast the two theories. In what ways are they similar, and in what ways are they different?

Select two countries located in different global regions. Identify the natural advantages and the acquired advantages of each of the countries. Compare and contrast the economic, cultural, and political similarities and differences

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Part Three Theories and Institutions: Trade and Investment Chapter SIX INTERNATIONAL TRADE AND FACTOR MOBILITY THEORY OBJECTIVES • To understand theories of why countries should trade • To comprehend how global efficiency can be increased through free trade • To become familiar with factors affecting countries’ trade patterns • To realize why countries’ export capabilities are dynamic • To discern why the production factors of labor and capital move internationally • To grasp the relationship between foreign trade and international factor mobility Chapter Overview Chapter Six provides a conceptual foundation for the exploration of the international trade process. First, it examines the basic theories of mercantilism, absolute advantage, and comparative advantage. Then it explores patterns of trade in light of the theories of country size, factor proportions, and country similarity. It also considers the role of distance and explains the relevance of Product Life Cycle Theory and Porter’s Diamond of national competitive advantage. The chapter concludes with a discussion of factor mobility and its relationship to the international trade process. CHAPTER OUTLINE OPENING CASE: COSTA RICAN TRADE, FOREIGN INVESTMENT, AND ECONOMIC TRANSFORMATION [See Map 6.1.] Costa Rica, a Central American country of barely 4 million people, has successfully transformed its primarily agricultural economy to one that includes strong technology and tourism sectors as well. Bordering both the Pacific Ocean and the Caribbean arm of the Atlantic, Costa Rica used international trade and factor mobility policies to help achieve its economic objectives. Although exports of coffee and bananas are still important, high-tech manufactured products (electronics, software, and medical devices) are now the backbone of Costa Rica’s economy and export earnings. As in all countries, Costa Rica’s policies continually evolved, but generally…


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