Definitions of terms

The reduction in long-run average and marginal costs that results from increasing the size of an operating unit, such as a factory or a plant, is referred to as scale economy. Firms have internal economies of scale. External economies of scale, on the other hand, emerge as a result of substantial developments outside of a business that typically affect an entire industry.

Localization is the process of limiting something to a certain area or adapting it for usage in a specific location, whereas urbanization is the rise in people in cities and towns vs rural areas.

Agglomeration about labor may work especially through transport by enabling commuting journeys to support broad labor markets and also by providing international connections to support the export of high productivity.

-Agglomeration about demand and consumers works efficiently by locating firms in close geographic proximity and reducing consumer costs.

-Agglomeration about the linkage between suppliers and buyers takes effect by fostering rapid business to business contact.

-The role of infrastructure in agglomeration is to contribute in forming location behavior and regional economic development.

-Diseconomies of scale relate to agglomeration in such a manner that due to agglomeration of economics, people and industries tend to concentrate on particular areas and this is where diseconomies of scales come in, and firms become too big, and average costs start to rise.

-Michael Porter in his book the Competitive Advantage of Nations argues that clusters have the ability to impact competition in the following ways; improving the production rate of business in the group, creating new ideas in the field and propagating new ventures in the area.

-Wade, when he says locations are ’sticky’ for many high-income activities, means countries and regions with higher proportions of increasing return activities and this are because high-wage zone can more readily absorb the Schumpeterian shocks.

-Wade says that new centers of manufacturing have not captured a proportionate income increase

-About their new production capacity because trade facilitation has an impact on income distribution and poverty in and customs administrations often does not want the services because they reduce available rents.

-A firm may choose FDI because It can create jobs in an effort to increase productivity, skilled and semi-skilled workers, it further reduces unemployment and thus reduces social problems, and finally, it can advance the quality of commodities and production in a particular firm, increased attempts to better human resources.

-Advantages of Greenfield FDI, as opposed to other forms of investments, is that there is increased control, there is the ability to build marketing partnerships and also there is avoidance of intermediary costs.

-Some of the advantages of M&A or JVs as opposed to Greenfield FDI an extent market share, reduction of competition and greater speed to market.

-Dissemination risk refers to the extent to which a firm’s know-how will be expropriated by a contractual partner.

-Strategic asset seeking is where goods are needed by an entity for it to maintain its ability to achieve future outcomes while efficiency economies are the impossibility of producing massive welfare from the resources available.

-A firm-specific asset refers to the investment that has a greater value and highly promote an activity more than when they would have to serve another purpose.Examples include patents and private electric power utility.

-FDI is not best explained as the search for low wages because of the massive entry of cheap labor into the international market which seeks to attract foreign capital through low wages.

-The product life cycle concept for patterns of FDI implies that FDI in production plants drive down unit cost or simply meets local demand thus production facilities relocate to countries with lower incomes.

-Transactions costs are costs that area business gets when making a transaction exchange when carrying out a trade.

-Absolute advantage is the capability of an individual, country or a party to produce a greater quantity of a commodities or service than competitors, using the same amount of resources, while Comparative advantage results when a country can generate product and services at a lower opportunity cost than another.

-The world economy has made a tremendous progress due to the technological advancement over past half century.

- As supported by the liberal trade theory, it is beneficial for a nation to import products it can to produce as this allow the nation to not only specialize the production of products it can manufacture efficiently but also access products that can be produced more efficiently in other countries.

- According to David Ricardo, the national differences on comparative advantage arise from the ability of the country to specialize in producing certain goods efficiently. However, Hecksher and Ohlins theory emphasize that the difference depends on the nation’s endowment.

- According to New Trade Theory, the industry structure other than the factor endowments can make a country specialize in particular products through economies of scale that allows availability of variety of goods to consumers at lower cost.

- As viewed by the Mercantilists, trade is a zero-sum game where one country loses for another to gain.

- China is believed to be a neo-mercantilist because of its ability to control financial and monetary policies that has seen a rise in its foreign exchange reserve. Even though countries like Japan have also been accused, the accusations are unreasonable as these countries are feared by the United States as emerging economic powerhouse.

- Mobile resources are believed to play a vital role in promoting free trade as immobile resources usually restrict free trade.

- Specialization in the production of a given product improves importation by the countries not specialized and exportation by the specialized countries. Also, specialization increase efficiency improves economies of scale, and production of various products at low cost.

- Paul Samuelson believe that a rich country may not benefit from opening to trade as this will caused lower wages in these countries because of more inward migration.

- Leontief’s paradox explains that the nation with the maximum capital-per-worker poses an inferior capital/labor ratio in what it exports than in it imports. Product Life Cycle Theory explains trade pattern of trade because as products grow, both the optimal production and sales location will change thereby affecting the direction and flow of commerce.

- New Trade Theory allows the government to intervene by developing strategic trade policies that cultivate and protect companies where economies of scale and first mover advantages are significant.

- Porter’s Diamond explains that a nation’s international success in a particular industry is due to demand conditions, factor endowment, relating and supporting industries and firms strategy. With these attributes one country may have competitive advantage over the other.

- The first mover advantages are essential in effective business strategy since the early entrants into any industry tend to enjoy particular privileges such as government protection that those who will enter later may not enjoy.

- The businesses may lobby for government policies as the legislations can influence demand and rivalry through product standards and regulation and antitrust laws.

- Critics believe that Germany promotes Mercantilism in its operations because of the manner it has increased its national foreign reserve and they believe that this can be fixed though international trade laws

- Free trade benefits everyone as a country can buy what it does not produce from another country and sell to another country what it produces. However, free trade can kill infant industries that are coming up in a given county.

- Free free-trade area describes region surrounding a trade bloc with member countries that have signed a free-trade accord. A customs union represents a trade bloc with a free trade area but has a common external tariff. A common market describes a free trade area that has a relatively free flow of capital and services. An economic union represents a trade bloc with a common market that has a customs union.

- The promotion of fair competing devoid of discrimination promoted the creation of WTO.

- The infant industry case forms economic grounds for trade protectionism. Since the nascent industries still lack the economies of scale being enjoyed by big competitors from other countries, they must be protected until they get to similar economies of scale

- The ’factor biased’ model of trade policy preferences tends to be favor resources such as land, labor, and capital.

- The ’sector biased’ model of trade policy preferences tends to favor certain industries over the other

- The ‘firm based’ model of trade policy preferences tends to favor individual companies over the other

- WTO is unfair to developing nations as it has failed to this nations still have no voice on critical trade matters.

- Some believe that WTO is not a rules based because the wealthy and powerful countries tend to have more voices than the poor nations.