DIŞ TİCARET

Since countries use more than two factors of production, it is impossible to find out the relative factor prices that are the determinants of the factor endowments without using factor price index. We need to know the factor price index so as to determine factor endowments of the trading countries in the real world of many countries, many commodities and many factors of production.

Demand preferences are the same in both countries: Along with rapid globalization, demand preferences are more or less the same across countries. Thus, this assumption of the HeckscherOhlin Theory is probably the one that best fits today’s international trade environment.

(Pages 93-94). Countries usually resort to
trade restrictions with various aims. Among them,
most referred aims are to protect the domestic
consumers, to collect revenue to the treasury, to
adjust balance of payments, to implement infantindustry argument and to serve for diplomatic
relations. The first two aims, namely to protect the
domestic consumers and to collect revenue to the
treasury, are referred as traditional aims of trade
restrictions.

Income elasticity of demand: It is the degree of responsiveness of demand for a commodity or a service against a change in income, provided that all other things remain the same

Inferior goods: It refers to the circumstance when the demand for a certain commodity decreases while the income increases. Potatoes and rice can be taken as examples for inferior goods. Inferior goods are the commodities that low-income consumers demand (Parkin, 2005, p. 90)

As we all know, Classical Trade Theory, Neo-Classical Trade Theory and the Heckscher-Ohlin Theory assumed that technology level is constant in trading countries. According to these theories, the basis of the comparative advantage depends either on the differences in labor productivity or factor endowments, leaving technological differences aside.

The Model divides the life cycle of a new product into five stages; new-product stage,  product-growth stage, product-maturity stage, product-standardization, product-decline
stage

The fifth and the last stage is the product-decline stage, which refers to the time frame starting with Z. In the fifth stage, the production of the new product within the innovating country decreases rapidly since the imitating country undersells it in its domestic market. In other words, it becomes impossible for the innovating country to compete with the imitating country both in the domestic and international market.

External economies of scale exist when the cost per unit of production depends on the size of the industry. In other words, average cost of production decreases as the scale of the industry increases. It refers to a reduction in the average cost of a firm in conjunction with the increase within the size of the industry.

Collect revenue to the Treasury: Another traditional aim of trade restrictions is to collect revenue to the Treasury. An import tariff serves as a customs tax on each imported commodity, and this tax collected from the imports goes to the Treasury to be used for public expenditure.

Overlapping Demands Model is usually referred as Linder Model.

Inferior goods: It refers to the circumstance when the demand for a certain commodity decreases while the income increases. Potatoes and rice can be taken as examples for inferior goods. Inferior goods are the commodities that low-income consumers demand.

We cannot definitely determine the comparative advantage of the trading countries by the Linder Model but instead, we can find out the pattern of trade. Linder Model is good at predicting the pattern of international trade.

Effects of technological differences on international trade are best explained by the Product Cycle Model. This model regards technological innovation as the key determinant of the pattern of trade within the manufactured commodities trade.

They are a type of intellectual property rights. Intellectual property is a general term referring to creations of the mind. Intellectual property rights designate creators with the right to protect themselves from the imitators for a limited period of time. Intellectual property rights have many types. For example; books, paintings and films are protected by copyrights while eligible inventions are protected by patents and brand names and product logos are registered as trademarks

The first stage is called new-product stage in which the product is produced and consumed only in the innovating country with skilled labor and high technology. The second stage is the product-growth stage, which is at the XV time frame. The third stage is product-maturity stage, which falls in the VY time frame. The fourth stage is product-standardization stage, which coincides with the YZ time frame. The fifth and the last stage is the product-decline stage, which refers to the time frame starting with Z.

Hereditary skill: Special skills for production can be transferred from one generation to another and thus prolong for decades.

Firms in the imperfect competition can be price setters.

The simplifying assumption of Heckscher-Ohlin Theory that states ‘one of the countries is labor-abundant and the other one is capital-abundant’ has a weakness because in the real world, it is not that easy to identify factor endowments of the countries. Since countries use more than two factors of production, it is impossible to find out the relative factor prices that are the determinants of the factor endowments without using factor price index.