Evolution of International Trade

Evolution of International Trade

• Classical theories are the main historical theories and are country-based.
• Division of labor is separating a work process into multiple tasks.
• Trade surplus is when a country's exports' value surpasses its imports' costs.
• Industrial capitalism is the second phase of capitalism, with industries becoming the dominant factor in production.
• Free trade system offers individuals more affordable goods.
• Mercantilism limits imports, reducing consumer choice.
• Bartering is directly trading goods and services.
• Legal tender is currency (coins and paper money) valid for debt payment.
• Inflation increases prices, decreasing purchasing power.
• Bills of exchange from the Treasury were used for Canadian expense payments.
• Mobile payments are payments via portable electronic devices.
• Near Field Communication (NFC) enables contactless payments using radio frequency identification.
• Sound wave-based (SWB) mobile payments use wireless transmission technology.
• Magnetic secure transmission (MST) uses magnetic signals for payment via secure tokenization.
• Mobile/digital wallets use encryption and tokenization for transaction processing.
• Quick Response (QR) codes are matrix barcodes read by smartphones for e-commerce payments.
• Short Message Service (SMS) (premium SMS payments) is paying via text.
• Direct carrier billing (DCB) is similar to SMS payments and charges payments to phone bills or prepaid SIM cards.
• Internet payments can be made on desktops, laptops, or phones.
• Wireless application protocol (WAP) payments were common on smartphones via WAP browsers/apps.
• "Auto pay" schedules bill payments from a bank account automatically.
• Payment links or pay by link are buttons/links sent via online channels to process transactions.
• Neobank is an umbrella term for digital banking services as a financial technology (fintech) solution.
• Cryptocurrency, virtual/digital currency, "digital gold", or "altcoins" are digital units used as exchange mediums or digitally stored value.
• Fiat currency/fiat money or cash is real currency issued by a central bank.
• E-money is digital fiat currency stored in digital wallets.
• Virtual currency requires conversion to Philippine peso.
• Blockchain is a database structure known as blocks and is a distributed or global ledger.

Classical Country-Based Theories of International Trade

• International trade theories analyze trade patterns, mechanisms, and guides on exports and imports.
• Trade is exchanging goods and services between two entities.
• International trade is the exchange of goods and services between entities in different countries.
• Early international trade theories were company-based and labeled classical theories.
• Mercantilism, aims to enrich a state by increasing gold and silver through economy policies.
• Protectionism is used by countries to protect export industries that bring in gold and silver.
• Colonization is when one country controls another.
• Entrepreneurship is combining and mobilizing production factors.
• Capital goods are produced by the economic system and are used as inputs for further goods and services.
• Capital refers to money used to purchase production goods.
• Natural resources are resources found in nature.
• Labor is a person's work for monetary compensation.
• Production factors include land, labor, capital, and entrepreneurship.
• Neo-mercantilism combines protectionism (tariffs, import barriers) with domestic industry protection (subsidies, tax exemptions).
• Free trade exists when international trade is unrestricted by barriers.
• Free trade facilitates liberalization, broad participation, benefits, and development.
• Laissez-faire economics restricts government economy intervention.
• Economies of scale occur when increased output reduces average costs.
• Jean-Baptiste Colbert had a significant influence on mercantilism in France, known as "Colbertism."
• Absolute advantage means a producer can create more goods/services at the same cost or the same quantity at lower marginal cost.
• Marginal cost is the cost to produce an additional unit.
• Adam Smith recognizes as the father of economics.
• Capitalism/free market economy/free enterprise is an economic system with privately owned production means where markets determine prices, products, and services.
• Physiocrats believed national wealth comes solely from agriculture.
• Free trade promotes international division of labor and specialization, enabling international trade and economic development.
• Vent for surplus doctrine is when a nation exchanges overproduction for other countries' in-demand goods for full use of productive capacity.
• Comparative advantage means a producer can make a good or service at a lower opportunity cost.
• Opportunity cost is the loss from choosing one option over another.
• Ricardo developed monetarism, a theory of controlling money supply to stabilize the economy.
• The law of diminishing marginal returns, also developed by Ricardo, states increased output eventually isn't worth the additional input.
• The Heckscher-Ohlin theory (H-O theory) links production to land, labor, and capital.

Modern Firm-Based Theories of International Trade

• Competitive advantage is the ability to offer customers greater value, for a superior business position.
• The country similarity theory states trading is linked to nations' identity and similarities.
• Inter-industry trade is trading goods between different industries across countries.
• Intra-industry trade is trading goods produced within the same industry.
• Life cycle is the series of stages from the beginning of its life until death of a living thing.
• Product life cycle is the time from a product's market introduction to removal.
• Product life cycle management (PLM) manages a product's life cycle from inception through retirement.
• Introduction stage involves raising product awareness and brand recognition without profit.
• Price skimming involves initially high prices that gradually lowers ("skimming"), as the market grows.
• Price penetration involves charging low prices to capture market.
• Growth stage sales increase exponentially as profitability peaks.
• Maturity stage sales continue to rise but incrementally, making it a must to generating customer brand loyalty.
• Decline stage occurs when marketing cannot prevent sales decline.
• Global strategic rivalry theory focuses on how multinational corporations gain competitive advantage over other firms.
• Barriers to entry are obstacles for new firms entering industries/markets that dictate competitive advantages.
• Research and development (R&D) are activities for companies to invent new products/services to stay competitive.
• Intellectual property is the result of creativity (manuscripts/designs) protected with patents, copyrights, trademarks, and brand names.
• A patent grants exclusive rights to new, inventive, and useful products, processes, or technical improvements.
• A trademark/brand name distinguishes a business's goods/services from competitors using words, signs, symbols, or logos.
• Copyright grants exclusive legal rights to reproduce, publish, sell, or distribute works (literature, music, or art).
• Economies of scale are gained savings in costs from increased production volume.
• Internal economies of scale are unique to a firm.
• External economies of scale are enjoyed by an entire industry.
• Experience provides competitive advantage.
• Business is activity engaged in by people, organizations, or countries covering any activity to earn income and gain a profit.
• Globalization is increasing the connectedness, integration, and interdependence of world cultures, economies, politics, and environment.
• Money is a medium of exchange.