Theories Of International Trade
- Theories
- Economic Theory
- International trade
- What is international trade
- Mercantalism
- Classical Trade Theory
- Absolute Advantage Theory
- What is the Comparative Advantage Theory?
- Factor Proportion Theory
- Heckscher-Ohlin theory
- Product Life Cycle Theory
- Theories of Outsourcing
- What is the Theories of Outsourcing?
- What is the Transaction Cost Economics Theory?
- What is the Agency Theory?
- What is the Knowledge based theory?
- What is the Self-regulation Theory?
- What is the Social cognitive theory?
- What is the Leader-Member Exchange Theory?
- Technology adoption Theories
What is international trade
Across the boundaries of different nations, the swapping or exchange of goods, currency and services is international trade, also referred to as foreign trade. As an illustration US people watches made in Switzerland and toys made in china. Also, in exchange for silks from Asia, European countries sell their technologies to Asia (Tallberg 2009).
What Are the Different International Trade Theories?
In earlier times, it was a popular belief among all nations that only countries that promoted exports and minimized their imports were at a competitive advantage. This concept is called mercantilism. But later on, Adam Smith, the neoclassical economist developed a hypothesis to prove the benefits of free trade. This is called as Absolute advantage theory and subsequently, an English economist David Ricardo developed the theory of comparative advantage from Adam Smith’s theory and then Two Swedish economists, Eli Hecksher and Bertil Ohlin, develop the second theory of international trade. The objective of this essay is to discuss the above-mentioned theories and to bring forth the advantages and disadvantages of the two theories. (‘Theories of International’ n.d).
Advantages & Disadvantages of International Trade
Advantages
- It is a medium of exchange that makes available goods on a much diverse variety. Due to comparative advantage, wasteful replication of goods using limited resources can be prevented. It offers protection to the environment.
- More employment opportunities could be generated as the marketplace for the nations’ products elaborates by trade.
- Foreign trade helps generate more employment by the organization of novel firms to provide to the needs of many countries. This will greatly help nations to bring down their rates of unemployment.
- International trade encourages competence in production as countries will try to accept good methods of production to keep costs down in order to remain competitive.
Disadvantages
- It might lead to a speedier diminution of exhaustible resources in nature.
References:
Anderson. JE n.d., International Trade Theory. Viewed 22 March 2010, <http://www2.bc.edu/~anderson/PalgraveTrade.pdf>.
Davis DR & Weinstein DE 2002, ‘An Account of Global Factor Trade’, American Economic Review, vol. 91, pp. 1423-53.
Deardorff, AV 1984, ‘The General Validity of the Law of Comparative
Advantage’, Journal of Political Economy, vol. 88, no. 941, pp.57-61