Internationalfinance

Theory of Comparative Advantage
Multinational business has generally increase over time. Part of this growth is due
to the heightened realization that specialization by countries can increase production
effi ciency. Some countries, such(prenominal)(prenominal) as japan and the United States, have a technology
advantage, while other countries, such as Jamaica, Mexico, and South Korea,
have an advantage in the be of basic labor. Since these advantages cannot be slowly
transported, countries tend to use their advantages to specialize in the production of
goods that can be erectd with relative effi ciency. This explains why countries such
as Japan and the United States are large producers of computer components, while
countries such as Jamaica and Mexico are large producers of agricultural and hand do
goods. MNCs such as Oracle, Intel, and IBM have grown substantially in foreign
countries because of their technology advantage.
When a country specializes in most products, it may not produce other products,
so trade between countries is essential. This is the argument made by the classical theory
of comparative advantage. Comparative advantages allow fi rms to hue foreign
markets. Many of the Virgin Islands, for example, specialize in tourism and rely
on the whole on international trade for most products.



Although these islands could
produce some goods, it is more effi cient for them to specialize in tourism. That is, the
islands are better absent using some revenues earned from tourism to import products
sooner than attempting to produce all the products that they need.
Imperfect Markets Theory
If each countrys markets were closed from all other countries, there would be no international
business. At the other extreme, if markets were perfect, so that the factors
of production (such as labor) were easily transferable, then labor and other resources
would fl ow wherever they were in demand. The open-plan mobility of factors would
create equality in costs and...If you want to achieve a full essay, order it on our website: Orderessay



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