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Interventionist Theory

The document discusses several economic theories related to international trade: 1) Mercantilism believes that countries compete for limited resources and governments should increase national wealth through exports and acquiring gold/silver/land from other countries. China's large foreign exchange reserves are a result of following mercantilist policies. 2) Free trade theory holds that trade without restrictions allows specialization and lowers costs, benefiting all countries. Absolute and comparative advantage theories explain why free trade is mutually beneficial. 3) Since opening up to foreign trade and investment in 1978, China has developed diversified import/export markets and trade relationships around the world.

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Heisnam Bidya
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414 views

Interventionist Theory

The document discusses several economic theories related to international trade: 1) Mercantilism believes that countries compete for limited resources and governments should increase national wealth through exports and acquiring gold/silver/land from other countries. China's large foreign exchange reserves are a result of following mercantilist policies. 2) Free trade theory holds that trade without restrictions allows specialization and lowers costs, benefiting all countries. Absolute and comparative advantage theories explain why free trade is mutually beneficial. 3) Since opening up to foreign trade and investment in 1978, China has developed diversified import/export markets and trade relationships around the world.

Uploaded by

Heisnam Bidya
Copyright
© Attribution Non-Commercial (BY-NC)
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Download as DOCX, PDF, TXT or read online on Scribd
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INTERVENTIONIST THEORY: THE ECONOMIC THEORY OF MERCANTILISMThis theory is based on the idea that countries competed for limited

resources. Mercantilist believed that it was the job of government to increase the wealth oh the country, by taking gold, silver, or land from another country. Also that the country should export more than what they should import. Two facts of Chinas emerging global economic power: a large foreign exchange reserve that China is holding, especially in dollar-denominated assets, and a large amount of foreign direct investment (FDI) going into China that rivals FDI into the United States. China's rapid rise in the foreign exchange reserve is a consequence of its mercantilist policy, exporting like mad by relying on a deliberately undervalued currency, cheap labor, and foreign investors, particularly those from the United States.

ECONOMIC THEORY OF FREE TRADETrade between countries which takes place completely free of restrictions. Such trade allows specialization in member states of free trade areas, and lowers costs because, together with competition, the markets are increased. Absolute Advantage Theory- refers to the ability of a party country to produce more of a good or service than competitors, using the same amount of resources. Natural Advantage Acquired Advantage Comparative Advantage Theory- two countries will both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods.

In 1978 China opened wider to the outside world, attracted and utilized foreign investment, introduced advanced technology, transformed and upgraded domestic industries, and achieved rapid development in foreign trade through all-round participation in the international division of labor and competition. China has formed an all-round and diversified import and export market. Since the adoption of the reform and opening up policy, China has been promoting foreign trade on all fronts, and established trade relations with the vast majority of the world's countries and regions. China's trade partners have increased from a small number of countries and regions in 1978 to 231 countries and regions now.

TRADE PATTERN THEORY Theory of Country size- Large countries are apt to have greater variety in climate and natural resources, making them more self sufficient than smaller countries Factors Proportions Theory Country similarity Theory

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