Theories of International Trade and Investment Which Enhance National Competition and the Determinants of National Competitiveness

Multinational companies gain an advantage in global markets if they have strong domestic rivals, strong domestic suppliers and local demand. Therefore, nations have become important for global business competition has shifted to other factors like education and ingenuity; hence a nation has to play a big role to remain competitive. This paper discusses the theories of international trade and investment which enhance national competition and the determinants of national competitiveness. How Nations Can Enhance Their Competitive Advantage In the current global markets, the nations with most advantage possess a great national competitive advantage. Such nations maximize this by having high rates of firm-level competition within its local industries, which makes the industries with competitive advantages over another fit for the global market.

With continuous innovation, the firms are able to come up with better products, processes, services, marketing techniques, and new ways of organizing hence sustaining competitive advantage. This will encourage access to useful talents, cut the costs of production and improve labor productivity. With a higher aggregate innovate capacity; therefore, implies a stronger national competitive advantage for innovation promotes productivity translating to efficiency. Michael Porter’s Diamond Model This model explains how to enhance competitive advantage at both the firm level and national level based on four major elements in the nation's economy. To begin with is factor conditions, which refer to the resources that the nation has that are useful in sustaining business competitiveness. Hierarchical companies tend to excel more hence a nation should encourage hierarchical firms.

In terms of salary, more local rivalry is better since it puts pressure on the company to be more innovative in turn improving national advantage. National Industrial Policy Here the government plays a very important role by challenging its local firms to move to higher levels of competitive performance. This is done through the implementation of industrial and business policies that push the companies to produce world-class products and services. The government main role here has to ensure that its policies align with Porter’s Diamond forces and even make forces more powerful. On the other hand, with stable political institutions, industries in such a nation are guaranteed of the best industrial policies which are guarded by the rule of law.

This is to mean that the government will support its firms in all perspectives and also ensure minimal business malpractices which drag economies back. Secondly, monetary and fiscal policy is another broad dimension in macroeconomic competitiveness that can determine a nation’s competitiveness. This is based on the measures of the nation’s fiscal sustainability, debt and inflation policies of a nation which redefine how the economy manages financial fluctuations in economic activity. These policies are the one that steers the economy in terms of its revenue collection and expenditure which has a direct impact on its industries. 0 initiative in the manufacturing industry that encourages utilization of the internet in production and marketing (Pegelz & Lütkenhorst, 2014). Conclusion In conclusion, national competitiveness in the international markets will always remain for each nation strives to remain competitive.

In this extensive array, divisions are normally made amongst diverse types of global companies, and these divisions are vital in knowing a company’s organization, policy and operational decisions (for instance its administrative, economic, human resource, advertising, or functional judgments). One particular division that can be vital is the peculiarity amid multi-national processes and the autonomous firms that act significantly as local companies, and international activities, with cohesive firms that are diligently linked and organized. These might be considered as the binary sides of a scale, with several prospects in between. Companies are less likely to exist at a particular side of the scale, though, as they normally merge features of native processes with the features of international processes. This paper therefore focuses on how nations can enhance their competitive advantage and those particular determinants of competitiveness.

Feenstra (2005) considers comparative advantage as a fiscal theory focused on the prospective achievements from business from companies, persons or countries that emanate from variances in their aspect benefactions or even high-tech progress (Freeman, and Shaw (eds. In a fiscal model, an proxy has a comparative advantage over others in making a certain produce if he or she can manufacture that produce at a lower virtual autarky price or opportunity cost, for instance at a lesser relative marginal cost (RMC) erstwhile to business (Robert E. Morgan & Constantine S. Katsikeas, 1997). The closely linked principle or law of comparative advantage asserts that in the free trade, a business will manufacture more of a produce and go ahead to use a smaller amount of a product for which it has a comparative advantage.

Katsikeas, 1997). In Portugal, for instance it is much easier to manufacture both cloth and wine with minimal labor that it would have to make same volumes in England. Nevertheless, the relative rates of producing those two products vary amid the nations (Cavusgil, Knight and Riensebberger, n. d). This particular comparative advantage between England and Portugal can be demonstrated in the below table: Period (hours) required to produce a single Unit Country Wine Cloth Portugal 80 90 England 120 100 It can be deduced from the above table that to be able to make an extra item of cloth, England must pledge about 100 working hours, which could have in its place made 5/6 units of wine (Robert E. Morgan & Constantine S. Katsikeas, 1997). Additionally, if both nations major on the above process and England sells a single item of its cloths for about 5/6 to the 9/8 items of Portugal’s wine, then both the countries could take in no less than a single item of wine and cloth, with about 0 to 0.

2 items of cloth and also the 0 to about 0. 125 items of wine left in every given nation to be exported or utilized (Robert E. A sample of researches has got a vital long-lasting connection amid prosperity and the type of institutions (Branstetter, Lima, Lowell, and Venancio, 2010). Precise features of established eminence that must been correctly analyzed comprise the rule of law, the superiority of authority, the existence of property privileges and the effect of corruption (Goodfriend, 2007). Public safety, Health care, and education are other elements of the total social amenities vital to promote fruitful fiscal activity (Acemoglu, Johnson and Robinson, 2001). If big parts of the populace have less elementary writing skills and reading, their capacity to enthusiastically involve in the economy is greatly limited (Aghion, Howitt & Mayer-Foulkes, 2007).

If the occurrence of an HIV/AIDS rife or malaria means that the majority of the people must focus on nourishing their elementary health, then there is minimal confidence for them to be fruitful (Freeman, and Shaw (eds. Within usual consideration, the general magnitude of the régime (the amount of taxes) is less essential that how duty is organized and how the management spends funds. Micro-fiscal factors include those that impose a straight impact on labor force mobilization and the productivity of the company or nation (Branstetter, Lima, Lowell, and Venancio, 2010). The policy always makes a difference between incentives (openness and competition) and inputs (normally from government investments) as influencers of greater efficiency (Goodfriend, 2007). Porter’s work merged these particular factors and other extents of the state corporate setting into one cohesive basis, adding the value of native demand settings and also the existence of the supporting and related businesses (Freeman, and Shaw (eds.

Due to their graphical symbol, these particular four sects have jointly been defined as Diamond. aeaweb. org/articles?id=10. 1257/aer. 1369 Aghion, P. , P.  Venancio.  “Do Entry Regulations DeterEntrepreneurship and Job Creation? Evidence from Recent Reforms in Portugal,” NBERWorking Paper No. Retrieved from https://doi. org/10. 1111/ecoj. Shaw (eds. International Differences in the Business Practicesand Productivity of Firms, NBER Conference Reports, Chicago, The University of Chicago Press. Goodfriend, M. “How the World Achieved Consensus on Monetary Policy,”Journal of Economic Perspectives 21(4), pp. Retrieved from https://pubs. net/publication/4895752_Structural_Transformation_and_Patterns_of_Comparative_Advantage_in_the_Product_Space Lin, J. Y. “New Structural Economics: A Framework for Rethinking Development,”Policy Research Working Papers, no. 5197, Washington D. C. Handbook on Constructing Composite Indicators.