A Framework of International Business

Chapter 2 Theories of International Trade and Investment

Learning Objectives

In this chapter, you will learn about:

• The theories that explain international trade and investment

• The reasons why nations trade

• The ways nations can enhance their competitive advantage

• Why and how firms internationalize

• The ways internationalizing firms can gain and sustain competitive advantage

In this chapter, we explain why nations and firms trade and invest internationally.1 We explain why such participation allows nations to acquire and sustain comparative advantage and why it enables firms to acquire and sustain competitive advantage in the global marketplace. We address such questions as:

• What is the underlying economic rationale for international ...