New Trade Theory Research Paper

Download this Research Paper in word format (.doc)

Note: Sample below may appear distorted but all corresponding word document files contain proper formatting

Excerpt from Research Paper:

New Trade Theory

Since the end of the Cold War, the world has been undergoing a major transformation. This is because of globalization and advances in technology are making countries more interdependent upon one another. The basic idea is to reduce trade barriers and increase the total amounts of competition. Over the course of time, this will increase productivity and specialization (which will help to improve the standard of living in specific regions). However, the recent economic implosion from 2007 to 2009, are illustrating how all economic theories are filled with flaws. (Taylor, 2008, pp. 1 -- 11)

As a result, a host of new theories are being introduced to address these issues. In some cases, this involves taking old ideas and combining them with new techniques. While at other times, these views are building off of the mistakes of the past to create the best economic philosophy. To fully understand what is taking place requires examining different theories in conjunction with one another. This will offer the greatest insights at to which economic theory is the most effective. (Taylor, 2008, pp. 1 -- 11)

Economic Theories

After the downfall of the Soviet Union, is when there were renewed interests in promoting more liberal economic programs (i.e. free trade). This is because the prominence of Japan on the world stage, highlighted the challenges of bi lateral relations between two countries (i.e. The U.S. And Japan). At the heart of these issues were: protecting nationalized industries and how fast any kind of liberalization should occur. This had an impact on the U.S. -- Japan relationship, with America running a trade deficit. While Japan, was having trouble ensuring that select nationalized industries (such as: agriculture) would not be squeezed by U.S. food imports. In response to these challenges were various trade rules that were established on the international level. To objectively enforce these regulations, is the World Trade Organization (WTO). As a result, the main focus of economic policies and theories has been on how to liberalize trading between countries. (Jones, 1994, pp. 151- 157) (Ssennoga, 2006, pp. 218 -- 249)

Moreover, the economic realities after the end of World War II are illustrating how smaller nations have trouble competing on the world stage. This is because importing or exporting products into each country individually can become very costly and frustrating (from the different regulations). As a result, trading and political blocks were established to address these issues (i.e. The EU and NAFTA). This is highlighting how there has been a focus on having more liberal trading strategies with a shift to new economic theories (most notably: free trade). (Jones, 1994, pp. 151- 157) (Ssennoga, 2006, pp. 218 -- 249)

Increasing Exports

One theory that has been introduced is to have manufacturers concentrate on increasing exports as much as possible. The main reason is because most international markets and producers are highly inefficient. In the majority of cases, only those firms with the economic backing and capital can be able to increase their profit margins using these ideas. Once this happens, is when they will see an increase in productivity and their profit margins. (Greenway, 2007, pp. F134 -- F161)

Moreover, these kinds of firms are able to compete directly in the world markets (which gives them the flexibility to adjust to a host of challenges). This means that these producers can outsource select functions to specific areas that will give them a competitive advantage. Over the course of time, this changes these kinds businesses into multinational corporations with multiple streams of income. (Greenway, 2007, pp. F134 -- F161)

In the case of domestic producers, they are unable to compete on the world stage (which is why they are focusing on specific localized markets). Once trade barriers have been removed and new competitors are emerging, is when they will have trouble adjusting. This increases the chances that these kinds of firms will more than likely be forced out of business. To deal with these challenges, all producers need to abandon their beliefs in localized markets. Instead, they must seek out strategies to increase their exports as much as possible. This will improve their ability to compete on the world stage by forcing these companies to adjust early. Over the course of time, this kind of focus will turn domestic firms into multinational powerhouses. This is when they will be able to more effectively compete with the transformations inside the marketplace. (Greenway, 2007, pp. F134 -- F161)

These areas are showing how those companies that are taking a more global focus will be able to effectively compete on the world stage. As a result, all firms should be concentrating on the international markets and preparing for the challenges they will be facing in future. This is different from current economic policies, with an emphasis on free trade. Yet, manufacturers are focusing on both domestic and international markets. (Greenway, 2007, pp. F134 -- F161)


Despite the claims about how increasing exports will improve productivity and profit margins, many critics believe that this idea ignores movements in the currency. This is troubling because, different nations will often let their currencies float against each other on the world markets. Those developing countries that are using a peg may be reluctant to remove them. This is from the belief that it will increase the volatility in their currency (which could lead to an exodus of foreign direct investment capital). (Greenway, 2007, pp. F134 -- F161)

However, despite these criticisms there is evidence showing that a mass exodus will not occur because of significant declines. Instead, the economy will suffer short to medium term pain. The difference is that this process will help the currency to adjust with the forces of supply and demand. Over the long-term, this allows the economy to become more competitive. (Greenway, 2007, pp. F134 -- F161)

For example, during the Asian financial crisis it was feared that Indonesia would see a loss of investment capital after the decline of the currency in 1997. The reality was that these events helped to make the manufacturing base more efficient. At which point, they were able to compete effectively on the global stage. (Greenway, 2007, pp. F134 -- F161)

Evidence of this can be seen with comments from Greenway (2007) who said, "The 2 to1 devaluation of the Indonesian rupiah against the U.S. dollar between 1996 and 1998 did not lead to an aggregate export boom. Deeper analysis showed that although there was an expansion of export activity by established exporters and new entry by non-exporters, new activity was offset by cessation of exporting by previous exporters." (Greenway, 2007, pg. F141) This is significant, in showing how these ideas can help to address the challenges facing many countries that are worried about the pace of liberalization. Despite these concerns, those nations that are able to increase exports were more competitive on the world stage. (Greenway, 2007, pp. F134 -- F161)

Porter's Diamond Model

Another strategy that has been often discussed is Porter's Diamond Model. This is when there is a focus on looking at specific procedures that will help to make a country more competitive over the long-term. At the heart of this approach, are several different areas that must be focused on to include: factor conditions, demand, related supporting industries, firm strategy / rivalries, government and chance. Factor conditions are those specific areas that will allow industry to function (i.e. roads, sewage and the power grid). Demand is when there is a focus on if localized market can push producers to innovate and create better products / services. Related supporting industries are those producers that can provide manufacturers with the material to build the final product (such as: iron ore for steel production). (Gonzalez, 2011, pp. 17-30)

Firm strategy / rivalries are when there is a focus, on creating procedures that will keep firms competitive over the long-term. Government is when actuaries are studying their impact on the local economy based on: business traditions and the way they intervene in select areas. Chance is those areas that are outside of the control of executives and government officials (i.e. recessions). The combination of these factors is illustrating how this approach can help countries to establish economies that are more balanced. This is when they will be able to ensure consistent growth that adapts with changes in the marketplace. (Gonzalez, 2011, pp. 17-30)

Evidence of this can be seen by looking no further than a study that was conducted by Gonzalez (2011). She found that this model is effective at helping organizations and governments to troubleshoot the issues that impacting the economy with her saying, "The adapted model places more importance on the role of rivalry and therefore, it is considered as an independent determinant factor. Fierce and strong competition has played a critical role in the development of the national firms. Consequently, it should be included in the model as a distinct factor from the firm strategy, structure, and rivalry determinant in Porter's model. The…[continue]

Cite This Research Paper:

"New Trade Theory" (2012, March 19) Retrieved December 11, 2016, from

"New Trade Theory" 19 March 2012. Web.11 December. 2016. <>

"New Trade Theory", 19 March 2012, Accessed.11 December. 2016,

Other Documents Pertaining To This Topic

  • Trade Theories to Enhance International Trade

    International Trade Theories International trade may be classified as the trade of capital, goods, and services across international boundaries or areas. In many nations, such trade signifies a substantial share of the country's gross domestic product (GDP). While international trade continues to be present throughout a lot of significant research for trade history (see Silk Road, Amber Road), the fact remains that the over societal, economic and political importance for international

  • International Trade Theory the Decision

    "Policy issues attract a substantial attention from both economists and policymakers in the recent years" (Obsteldt). With such attention being focused on the policy issues, it makes more than a little sense, to focus the attention there as well in order to have a higher likelihood of success than without the same attention. In order to focus attention on those policy issues it must be understood what those policy

  • Trade Balance the Concept of

    Earlier studies based on Bretton Woods data were only refuted because the data sets of the later studies were insufficiently long. It may be, therefore, that Himarios is one of many that will now be able to demonstrate that long-term equilibrium is possible. It may that it requires nearly at least three decades' worth of data and a multi-country study in order to see the equilibrium emerge, meaning that

  • Trade Show Industry in Germany

    Therefore, this study is significant because it explores a very important channel of marketing and communication in the B2B market. The study is important for a second reason that international trade is becoming a cause for concern after the global recession. The economies of various countries have been affected after a decline in their purchasing power. It is said that economic recovery is possible through an increase in trade and

  • Trade Agreements and Negotiations on International Trade

    Trade Agreements and Negotiations on International Trade International Trade Trade is important to countries all around the world. International trade opens up job opportunities and also leads to development of economic activity in every region of the trading country. The trading countries must also ensure that traders, whether self-employed entrepreneur, corporate executive or pensioner must bear the responsibility of making sure that goods and services are transported efficiently to global markets.

  • Trade Issues Surrounding an Internationally

    It stated that the future negotiations will "try to achieve substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support" (Beghin, Roland-Holst and Van Der Mensbrugghe, 2002). 6. Possible future developments All in all, the topic on the international trade of agricultural products remains opened for further discussions; and the most likely outcome is an increase

  • New Economics Recipient of the

    Furthermore, numerical measures can no longer be the sole benchmark on which to base company success or individual performance. Deming recommends the abolition of commission-based sales and substantiates that recommendation by noting that number-based systems permit the distortion of facts. In sum, Deming claims that America has fallen pray to a "goals without method" mentality. Chapter 3 begins Deming's offer of a solution to our culture's short-sightedness: "The Introduction to

Read Full Research Paper
Copyright 2016 . All Rights Reserved