Sri Lanka, which means resplendent land, is an island country of more than 16 million people off the southeast coast of India. Lying just above the equator, it is 270 miles long and 140 miles across at its widest points (see Map 4.1). It has a hot tropical climate with two monsoon periods, yet...
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In the introductory case, Sri Lankan authorities, like authorities in all countries, wrestled with the problems of what, how much, and with whom the country should import and export. Once they made decisions, officials enacted trade policies to achieve the desired end results. These policies, in turn, affected business: They influenced what products companies...
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MERCANTILISM Why has Sri Lanka been so dependent on primary rather than manufactured products? Perhaps the answer lies in mercantilism, the trade theory that formed the foundation of economic thought from 1500 to 1800,2 and premised that a country’s wealth was measured by its holdings of treasure, usually in the form of gold. According...
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ABSOLUTE ADVANTAGE So far we have ignored the question of why countries need to trade at all. Why can’t Sri Lanka (or any other country) be content with the goods and services produced within its territorial confines? In fact, many countries, following mercantilist policy, did try to become as self-sufficient as possible by producing...
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Theory of Country Size The theory of absolute advantage does not deal with country-by-country differences in specialization; however, some recent research based on country size helps to explain how much and what type of products will be traded. Variety of Resources The theory of country size holds that because countries with large land areas...
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