International Trade: Adam Smith and Michael Porter

Since the financial crisis in 2008 the rising economic recession and the unemployment rate faced in the UK caused great concern about what the government should do and to do to revitalize the economy. Based on the 1998 Harvard Business Review, this article analyzes possible solutions from the perspective of two different economic philosophers, Adam Smith, based on his publication "Country of Wealth" and Michael Porter Did. Article "Cluster and New Economy" Competition.

I am reading an article that "The competitive advantage of the country: Porter's diamond model framework is a new theory to explain the international competitiveness of the country". Smith (2010). The framework presented by Michael Porter is the best framework for identifying macroeconomic factors that analyze the business environment to improve the organization's competitiveness. According to Michael Porter, its strategy, structure and competition, factor conditions, demand conditions, and supported industries play the most important role in industry and organization competitiveness. Most importantly, the government plays an important role in improving these factors by developing effective macroeconomic strategies.

As Adam Smith and classical economists have developed, international trade theory is a very powerful theory because of its universality. As with trade among citizens of a country, international trade is an effective mechanism to allocate resources and improve the welfare of the country regardless of the level of national economic development. Any trade barriers hurt the trade profits and hurt the economy. Smith and classical economists strongly advocate the grounds for trade liberalization through government regulations (such as import tariffs and quotas) and transition to free trade.

Adam Smith solved this problem first, he did not agree with the commercialist's international trade opinion. Adam Smith then came up with a theory that led to the idea of ​​specialization and division of labor applied to international trade. He called this theory as an absolute advantage. According to Adam Smith, Nigeria supplies more crude oil than England because it has different capabilities to effectively produce goods and services, so gasoline can be produced more efficiently. In theory all parties will benefit when focusing on products that produce more efficiently and trading with goods and services produced more efficiently in other countries. Therefore, both countries follow the theory of absolute advantage and benefit of international trade (Hill, 2008)